Profitability of Delta-Northwest in year one would depend upon fuel prices
Published: 23 Apr 2008: The chiefs of Delta Air Lines Inc. and Northwest Airlines Corp. expect to receive antitrust approval from the Justice Department for their proposed merger.
NWA Chief Executive Douglas Steenland and Delta CEO Richard Anderson told media that they don´t expect the merger will result in the closure of hubs or major reductions of service.
"We´re in uncharted waters. We can´t sit here and say, look the level of service is going to stay exactly the same, not knowing whether fuel is going to be at 115, 120, or 130 dollars a barrel for crude," Steenland said.
Anderson also was asked if a combined Delta-Northwest would be profitable in its first year, and he responded, "It will all be a product of fuel prices ... and stay tuned for earnings tomorrow and you´ll see what a dramatic effect it´s had."
He also mentioned that domestic airlines need to raise fares by 15-20% to keep up with rising costs. Anderson told reporters in Washington that the hike is needed for airlines just to break even because of the price of fuel.
Meanwhile, the governing body for the Minneapolis-St. Paul International Airport reportedly said that Northwest Airlines Corp. would violate covenants worth hundreds of millions of dollars if it moves its headquarters to Atlanta in the wake of the airline´s merger with Delta Air Lines Inc. As per the information available, terms of the deal call for the combined company to be headquartered in Atlanta, a decision that calls into question $245 million in general obligation bonds owed by Northwest as part of a funding package. Northwest is repaying those bonds over 20 years, but will have to accelerate those payments if its headquarters leaves Minnesota.
According to local media reports, Tammy Lee, a representative for Northwest, called it a matter of "putting the cart before the horse," explaining that the merger has not been solidified yet, and the carriers are hoping to work "in a spirit of cooperation" with Minnesota officials and MAC on the specifics of the deal. She added that if the proposed merger goes through, the combined airline would have about $7 billion in liquidity, more than enough to pay back the $245 million obligation. However, the companies are hoping that the hub covenant terms can be negotiated.