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Prospects of Delta/ Northwest merger occurring probably not even as good as 50%: CAPA

04/18/2008| 10:22:00 AM| 中文

Post the announcement of Delta and Northwest merger, the shares of two airlines slid on concerns about buyout obstacles and costs.

Post the announcement of Delta and Northwest merger, the shares of two airlines slid on concerns about buyout obstacles and costs.

Plus, it is being projected that the move may lead to a deal between United and Continental, pushing other leading carriers like American and even Southwest to pursue partners of their own. And eventually, the prospect of fewer players suggests that carriers will have more power to raise prices, particularly as they shrink capacity to cut costs.

But coming back to the Delta Air Lines Inc. and Northwest Airlines Corporation merger, what are the real prospects of it taking place?

According to Centre for Asia Pacific Aviation (CAPA), "the prospects of the merger actually occurring are probably not even as good as 50%. Why?"

CAPA explained further on the factors impacting the merger:

First of all, cross-border merger is out of the question, because of archaic, nationalistic foreign ownership restrictions. So the scope for full merger is effectively limited to domestic options. Secondly, at least one of the airlines involved in this transaction is heavily unionised (many international airlines deal with a dozen or more unions). Pilots in particular, who pack enormous clout, tend to be intransigent, often regardless of their own best interests, when it comes to merging seniority systems. Union opposition has the power both to foil the initial merger and its implementation.

Thirdly, the merger will change the competitive balance of the US industry, as well as the international marketplace, where the Skyteam alliance, led by Air France/KLM and Delta, will become a much greater force. So, as soon as the deal is formally agreed between the two US airlines, US anti-trust and European competition law authorities will all swing into (inertial) action. The prospects of a speedy and unconditioned response from all of the relevant bodies rank as high as winning the national lottery.

And then, the special feature of the moment, a Presidential election campaign is under way. Many established interests, including those of unions, are affected by any merger and a common feature of election campaigns is a desire to protect the status quo for potential voters. For example, Minnesota has in the past committed substantial funding to support Northwest, and that State may lose some service if Northwest´s hub in Minneapolis is downgraded. According to Minnesota´s Metropolitan Airports Commission, "Northwest Airlines made legally binding commitments to keep the airline´s hub and headquarters…here.…(and) we will work to the best of our ability to leverage those commitments". It will not be long before the Presidential candidates are lining up to protect these and other vested interests.

The sharks are circling and the minnow is not yet even fully formed. This is a merger that needs to happen, both for the airlines concerned and as a precedent for immediate imitation. If this opportunity is lost, there will be blood.
TAGS: CAPA | Delta | Northwest Airlines
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