Delta/Nw Merger on April 15, 2008, Delta Essay

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Delta/NW Merger

On April 15, 2008, Delta Air Lines and Northwest Airlines formally announced a merger agreement forming the largest commercial airline in the world; a fleet of almost 800 aircraft. This combined airline, still known as Delta, would have a value of $17.7 billion. In addition, due to the merger and the proposed benefits and synergisms, the company stated that it had come to an agreement with its pilot union to extend the collective bargaining agreement through the end of 2012; providing Delta pilots a 3.5% equity stake in the newly created organization (Rhoades 2008).

On September 26, 2008 the shareholders of both companies approved the merger, with only a Federal antitrust review board's approval. As expected from most analysts, the merger was approved by all requisite Federal agencies, largely due to the minimal overlap between the two carriers' routes and very little threat to competitive industry pressures. A few senators objected to the merger, but by October, 2008, the U.S. Department of Justice approved the merger noting that it was "likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition" (American Bar Association 2008 p. 362).

The basic rationale for the merger was fiscal. Both airlines were facing massive losses for 2008, and their historical performance in the 21st century had not been positive.

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This, of course was due to a number of factors; increased fuel prices, overhead costs, consumer demand and competition for routes, the economic downturn, and a general malaise that the entire airline industry faced. For Delta, the anticipated loss was staggering, an increase net loss of $268 million in Q1 2008 alone. Northwest was even worse, reporting a net loss of $4.1 billion in first quarter 2008, compared to $292 million in first quarter 2007. Both companies were now paying up to 50% more for jet fuel, and clearly unable to pass this cost increase on to ticketed passengers.

Essentially, both corporations realized that if they were to survive at all, they would need a strategic and cooperative plan of action. For its part, Delta announced that this merger would save them $1 billion in costs effeciences, thus helping to offset the fiscaol impact of higher fuel costs. In a press release, Delta noted, "Record fuel prices have fundamentally changed the economics of the airline industry…. Fuel costs are… significantly eroding the financial benefits of restructing and placing the airlines'newfound strength and stability at a long-term risk (Center for Management Research 2009).

Synergies- Combining Northwest and Delta created a global carrier, based in the United States, than was able to proactively compete with foreign airlines and prevent the cannibalism.....

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