Airline merger math

Posted at 1:44 PM on July 22, 2008 by Bob Collins (0 Comments)
Filed under: Northwest Airlines

The lower the stock of Northwest Airlines and Delta Airlines goes, and the higher the cost of jet fuel climbs, the more savings, apparently is to be realized by the merger of the two companies.

That's because Delta now believes the merger will produce $2 billion in savings and benefits, up from an original estimate of $1.2 billion, and will cost about $600 million, down from the $1 billion projected earlier.

"When we announced in April with oil at $110, we wanted to make certain we did not over-commit to Wall Street what the real value was," said Delta President Ed Bastian, in an interview with TheStreet.com. "We would rather under-commit and then deliver good news.

"Now that we've had an opportunity to do more detailed work, we've been able to validate the synergies we thought were there, but had a difficult time quantifying," he says. "With oil at $130 a barrel, we have to make sure we are getting every last nickel of synergies and also make sure we have good transparency."

$2 billion in savings between now and 2012. How much is that? That's about one-fifth of the total amount the two airlines lost -- at least on paper -- in just the first three months of this year.

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