Running head: DELTA AND NORTHWEST AIRLINES MERGER

Reasons for Delta and Northwest Airlines Merger

Embry Riddle Aeronautical University

Assignment 3

20 April 2016

Author’s Note

This paper was prepared for Air Transportation Systems 321

DELTA AND NORTHWEST AIRLINES MERGER
2

Abstract

The reasons for airline mergers vary, however, much thought is given by various organizations

before this process can take place. These mergers must be approved by the Department of

Transportation to ensure that they are in the best interest of the aviation sector. In late 2007,

rumor began to surface regarding a possible merger between two legacy airlines, Delta and

Northwest. These two airlines were already major carriers at the time and their merge would

create “the largest US airline deal ever” (Adams and Reed, 2008, para. 2). The Airline

Deregulation Act of 1978 did allow airlines to enter the market and compete on a larger scale,

however, mergers still remain largely regulated. In this paper we will cover the reasons for the

Delta and Northwest merger and the impact it had on the industry.

Keywords: merger, bankruptcy, airline, carrier, deregulation, competitive,

DELTA AND NORTHWEST AIRLINES MERGER
3

Reasons for Delta and Northwest Airlines Merger

The Deregulation Act of 1978 brought about many opportunities and challenges for the

air carrier industry. The competitive environment challenged many companies due to the

elimination of previous barriers that had been in place by the Civil Aeronautics Board (CAB).

Prior to the merger between Delta and Northwest airlines, both companies had been going

through difficult times. In regards to Delta, Mouawad (2011) mentions “the airline had the worst

record among large carriers for on-time arrivals last year, and it accounted for a third of all

customer complaints, the worst of any airline, for categories like service and lost bags, according

to the Transportation Department” (para. 20). The conditions leading to the deterioration of

Northwest airlines economically, were in part due to a failed investment in the purchase of

Republican Airlines, although many other factors applied. Additionally, the events of September

11th, 2001 (9/11) had a devastating effect in the airline industry as a whole, eventually leading

both Delta and Northwest to apply for bankruptcy in 2005. Upon emerging from bankruptcy the

two companies took a new direction an eventually merged completely into Delta Airlines.

Discussion

The reasons for a merger between Delta and Northwest were mainly due to economic

reasons that resulted from deregulation. In the early 21st century, Delta was struggling to

compete with low cost carriers and rising fuels costs. It has a high number of customer

complaints due to delays and satisfaction. Also the effects of 9/11 which caused a decline in air

travel further complicated the situation. Unfortunately as Zainaldin (2004) mentions:

After employing numerous strategies to reduce costs, increase revenues, and turn around

staggering losses, on September 14, 2005, the company finally filed for bankruptcy
DELTA AND NORTHWEST AIRLINES MERGER
4

protection from creditors. (Northwest Airlines, the fourth-largest carrier in the nation,

also filed for bankruptcy the same day.) Delta emerged from bankruptcy on April 25,

2007, and resumed public trading of its shares on the New York Stock Exchange about a

week later (para. 23).

Northwest also had economic implications that led to its demise resulting from a merger with

Republic Airlines which until then had been the largest merger in airline history (Moylan, 2008).

Like Delta, in the years leading up to 2005, the company was losing billions of dollars due to

labor union strikes, high fuel prices and the 9/11 aftermath causing them to file for bankruptcy.

They emerged from bankruptcy in May 2007 only a month after Delta, however, the economic

situation was still not favorable and high fuel prices among other issues continued to be an issue.

As a result Northwest decided that merging with another airline would be the best solution.

Bachman (2007) mentions that Northwest Airlines (NWA) Chief Executive Doug Steenland

calls the U.S. airline industry's consolidation “inevitable” (para. 1). Due to the resurgence of

both companies from bankruptcy, and the dynamics that could be shared by merging both

companies in regards to their hubs and routes, their merger led to the creation of largest airline in

the world. Bachman (2007) states “Internationally, Delta has built deep European networks from

Atlanta and New York, but flies to only two cities in Asia. Northwest, in turn, has a hub at

Tokyo's Narita airport and has been flying in Asia for more than 60 years” (para. 11). This

gigantic merger of domestic and international routes was opposed by many members of

Congress and labor groups because it would warrant an immediate response by competitors in

order to maintain their status and be able to match the services Delta would now be able to

provide. Adams and Reed (2008) state “with more than 800 jets, 6,400 daily flights and nearly

$32 billion in annual revenue. The carriers estimate the value of the new company at $17.7
DELTA AND NORTHWEST AIRLINES MERGER
5

billion dollars, far above their current market value” (para. 2). Since its merge, Delta has

continued to grow and is currently still the largest airline in terms of passenger volume

transported.

Conclusion

Deregulation has affected the airline industry in positive and negative ways but what is a

fact is that being competitive in the airline industry is necessary for companies’ survival. The

merger between Northwest and Delta airlines was most likely was the last chance for both of

these carriers to emerge from difficult economic situations. By creating the largest airline in the

world and consolidating their routes and assets, Delta has emerged stronger than ever expanding

its reaches from Europe to Asia. Other airlines have followed the same concept of mergers due to

the success that Delta and Northwest shared in order to maintain competitive with this global

giant. Delta’s CEO Anderson was quoted by Isidore (2008) as saying "The long-term best

interest of the employees of both of these airlines is for these airlines to be healthy" (para. 36).

This is ultimately true as airlines create thousands of jobs which help maintain the US’s global

economy.
DELTA AND NORTHWEST AIRLINES MERGER
6

References

Adams, M., Reed, D. (May 1, 2008). World's largest airline: Delta, Northwest in merger deal. Retrieved

from http://usatoday30.usatoday.com/travel/flights/2008-04-14-delta-northwest-

merge_N.htm

Bachman, J. (October 31, 2007). Why Delta Should Buy Northwest. Retrieved from

http://www.bloomberg.com/news/articles/2007-10-31/why-delta-should-buy-

northwestbusinessweek-business-news-stock-market-and-financial-advice

Isidore, C. (April 15, 2008). Delta acquires Northwest in $3.1B deal. Retrieved from

http://money.cnn.com/2008/04/14/news/companies/delta_northwest/index.htm?iid=EL

Mouawad, J. (May 18, 2011). Delta-Northwest Merger’s Long and Complex Path. Retrieved

from http://www.nytimes.com/2011/05/19/business/19air.html?_r=0

Moylan, M. (October 30, 2008). Northwest airlines- a look back at its long history. Retrieved

from http://www.mprnews.org/story/2008/01/09/nwa_history

Zainaldin, J. (July 27, 2004). Delta Air Lines. Retrieved from

http://www.georgiaencyclopedia.org/articles/business-economy/delta-air-lines