Date: January 10, 2008
Source: Atlanta Journal-Constitution
Author: Russell Grantham

Speculation that Delta Air Lines could soon be involved in a merger heated up Wednesday as analysts and union leaders reacted to a souring outlook for the industry and a recent plunge in stock prices.

The chairman of Delta's pilots union said it is making preparations in case Delta is involved in a deal, including opening a command center and scheduling a Jan. 23 rally.

"While we have been hearing about 'inevitable consolidation' for many years, it is becoming increasingly difficult to discount these facts and other recent events as simply more rhetoric," Air Line Pilots Association Chairman Lee Moak said in a letter to pilots. "Consolidation may indeed be at our door."

Meanwhile, UBS Securities analyst Kevin Crissey said he expects a major deal between two carriers within six months, and that a tie-up between Delta and Northwest Airlines in the most likely scenario.

Delta's board last fall created a committee and hired advisers to look at "strategic options to ensure Delta maintains its leadership position in the industry, including potential consolidation transactions." The carrier would not elaborate Wednesday.

"During this period we will not provide any updates on the board's process, nor will we comment on any rumors or speculation regarding mergers or acquisitions," Delta said.

Airline stock prices have dropped roughly 50 percent from last year's peaks amid concerns over high jet fuel prices and a weakening economy.

"We believe concern about another downturn, as suggested by recent economic data and stock price moves, may spur managements into action," Crissey said in a note to investors.

Delta's shares dipped below $12 a share this week before rebounding almost 15 percent Wednesday, to $13.52, amid the speculation. The stock peaked at more than $23 in April, shortly after Delta emerged from bankruptcy.

Delta went through a similar flurry of merger-related news in mid-November when Pardus Capital Management sent a letter urging management to begin merger talks with United Airlines.

Delta and United executives denied at the time that any talks were in progress, though United management is a vocal consolidation proponent.

Delta President Ed Bastian said at the time that the company is open to the "right deal" to take over another carrier.

Delta's recently hired chief executive, Richard Anderson, was CEO at Northwest previously.

Airline consultants and other experts say a merger could generate potential benefits by allowing the partners to cut capacity and raise fares while also axing overlapping operations.

But airline mergers are notoriously difficult to pull off successfully because of political and consumer opposition, labor issues and the challenges of smoothly combining fleets and computer systems. Several rumored or proposed mergers among top-tier airlines have failed to pan out for various reasons.

United and Delta are the second- and third-largest U.S. carriers, respectively. Experts say a combination between Delta and No. 4 Northwest could more likely win approval from the Department of Justice.