Delta Air Lines and Northwest Airlines said last night they have agreed to merge in a deal valued at more than $3 billion (€1.9 billion), aiming to cut costs amid skyrocketing fuel prices and compete better globally.
Under the terms of the proposed deal, which would create the world's largest airline, Delta will acquire Northwest in an all-stock swap in which Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own.
Northwest shareholders will get $13.10 per share in Delta stock based on yesterday's closing price of $11.22 a share, representing a 17 per cent premium to Northwest shares' close.
After racking up $35 billion in losses and finally emerging from a five-year slump in 2006, US airlines are hoping that mergers could lead to higher fares as combined carriers reduce flights and use their increased market power to raise prices.
The airlines also feel an urgent need to consolidate and cut costs in order to weather high fuel prices, a weak economy and a growing competitive threat from European carriers as trade barriers fall on trans-Atlantic travel.
This merger could also speed up another tie-up - that of Continental Airlines Inc and United Airlines, whose parent is UAL Corp.
Those two carriers have laid most of the groundwork for a merger, two people briefed on the matter said, and could have a deal ready "pretty quickly" following the Delta and Northwest announcement, one of them said yesterday.