VOL. 123 | NO. 15 | Wednesday, January 23, 2008
Name, HQ Location Are Thorny Issues In Airline Merger Talks
By HARRY R. WEBER | AP Business Writer
ATLANTA (AP) - A particularly thorny issue for Delta Air Lines Inc. in its talks with United Airlines and Northwest Airlines about a combination with one of the carriers is where the merged company would be based and what it would be called, industry observers say.
In recent months, Delta executives have spoken in near absolute terms about their desire and intention of keeping the Delta name and the headquarters in Atlanta. But aviation experts say such certainties are hard to achieve in complex negotiations that often involve competing interests.
"This is a business of egos," said Robert Mann, a Port Washington, N.Y.-based airline consultant. "While lots of things get negotiated, some of the toughest to negotiate are those sorts of issues that go with what it's going to be called, where it's going to be headquartered and who is going to run it."
Delta spokeswoman Betsy Talton reiterated Monday that Delta's board is analyzing strategic options, including potential consolidation transactions, but she declined to provide any update on the process or address the name and headquarters location issues.
Rep. Lynn Westmoreland, R-Ga., said his office has told Delta officials of its concern about the course of the merger discussions and in particular the issue of possibly moving the headquarters and changing the company name.
He said he has seen recent news reports discussing various scenarios involving the three airlines.
"Usually in this business you find out where there's smoke, there's fire," Westmoreland said.
Northwest Airlines Corp. officials are likely just as eager to see any combination they are involved in keep the Northwest name and the company based in Eagan, Minn., as United officials would likely want to keep the United name and keep its parent company, UAL Corp., based in Chicago.
In Northwest's case, Minnesota Gov. Tim Pawlenty pointed out last week in a letter to the chief executives of Northwest and Delta that Northwest has made financial commitments to keep its headquarters and a hub in Minnesota. Northwest would give up $215 million in financial incentives at the airport between now and 2020 if it moves its headquarters out of Minnesota. Pawlenty told reporters Thursday that his state would be willing to make additional commitments if that would keep Northwest based there.
One of the biggest factors driving renewed talk of consolidation has been the sharp increase in fuel prices, among the industry's biggest costs. Jet fuel costs have surged along with the price of oil, which jumped 58 percent last year.
The clock is ticking to get any deals accomplished quickly, some observers say. That is because industry observers believe a combination has a better chance of surmounting the considerable political and regulatory hurdles under the current administration than whatever might follow it.
But Mann said he thinks the airlines will take their time.
"I don't think it's going to happen soon because of the nature of not only the individual negotiations, but also the need to game out what will be the competitive responses," Mann said.
Terry Trippler, a Minneapolis airline expert, said he has noticed some subtle changes in wording in how the airlines have addressed the issue of name and headquarters location in recent months.
Delta President and Chief Financial Officer Ed Bastian told Atlanta television station WXIA in late November: "Delta as a buyer, headquartered in Atlanta, run by Delta people: Those are our terms."
Then, last Wednesday, Sen. Johnny Isakson, R-Ga., told reporters that Delta CEO Richard Anderson had recently told him that "as far as he was concerned" Delta would combine with another airline only if it keeps its name and maintains its current presence in Atlanta.
"I think we might be surprised who the buyer is and who the seller is," Trippler said.
Trippler said one possible scenario he envisions is a combination where the two airlines maintain their separate names and keep their headquarters cities as operational hubs, but have one board of directors in one city.
Morton Pierce, a New York-based mergers and acquisitions expert with the law firm Dewey & LeBoeuf, said that in these types of negotiations, one side can demand whatever it wants.
But, he added, "If you want to get a deal done, there is give-and-take and compromise."
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