Is a merger in Northwest Airlines' future?by Martin Moylan, Minnesota Public Radio
Northwest Airlines wants to hire a New York consulting firm, to provide advice about "strategic alternatives" that could include a possible merger with or acquisition of another airline. The news sent shares of bankrupt Northwest up 50 percent on Friday.
Eagan, Minn. — Industry analysts say Northwest may have no choice but to consider possible friendly -- or even unfriendly -- merger possibilities.
US Airways is trying to buy bankrupt Delta Airlines. If the deal goes through other carriers will feel pressured to find a partner to maintain their competitiveness.
Aviation industry consultant Darryl Jenkins says Northwest has to be ready should a merger frenzy overtake the airline industry.
"They're getting a counsel just for defensive purposes, if nothing else. Some of these marriages will be shotgun marriages," Jenkins says.
Jenkins expects US Airways will succeed in its quest to merge with Delta. The two airlines are both huge players in the eastern U.S. But Jenkins believes the two airlines can resolve regulators' concerns about their merger stifling competition. Jenkins says the obvious solution is to shed routes. And that's why low-fare carriers welcome US Airways' bid.
"Southwest, JetBlue and AirTran are all applauding the proposed merger because they think they will be big winners if the industry consolidates," Jenkins says.
The low-fare carriers expect they would scoop up routes that Delta and US Airways would have to drop to address regulators' concerns, Jenkins says. Airline mergers also tend to be fraught with problems that can drive travelers into the seats of other airlines.
Jenkins says a Delta-US Airways merger would make Northwest a prime target for another airline looking to get bigger. He says American Airlines would be the leading candidate. American would want Northwest Pacific's routes.
But Jon Ash, president of the InterVISTAS-ga2 aviation consulting firm, doubts regulators will permit US Airways and Delta to merge. Ash says they're both simply too big in the eastern U.S.
"There are a lot of overlapping markets," Ash acknowledges. "If you look east of the Mississippi, those two carriers control 40 to 45 percent of all the traffic east of the Mississippi.
"Delta is strong on the East Coast and strong in Europe and Northwest is strong in the Upper Midwest and strong in Asia. There is not a lot of overlap that would suggest competitiveness problems."
Northwest's hiring of Evercore requires the approval of the judge overseeing its bankruptcy. If Northwest is involved in merger or acquisition, Evercore stands to get a $2 million in addition to its other fees.
- All Things Considered, 12/08/2006, 5:49 p.m.