Merger Mania

As Delta Airlines closes in on a possible merger with Northwest Airlines, two big questions emerge for the US airline industry.

Who else is going to try and merge and what about fleet renewals?

At the start of the year, an initial report placing Delta Airlines at the forefront of merger activity in the USA by the Financial Times has also led to other US carriers talking amongst themselves.

Image courtesy of Tim Dauber

Consolidation, some argue, is well overdue and much needed in a sector beset by stringent security and ageing fleets. Talks are understood to have taken place between United and Continental, with the latter also courting American Airlines too.

Missing from the party action is US Airways, itself still struggling to emerge from its merger with America West.

Unsurprisingly, US Airways represents a stagnant carrier with little or no interest in becoming an industry heavyweight, and its likely that the carrier will be taken over rather than be the one doing any purchasing.

Southwest Airlines has also been rumoured to be in talks with rival AirTran. Whether something comes to fruition is debatable given Southwest’s pre-eminence as a strong, independent low cost airline.

Image courtesy of Rick Schlamp

Southwest, Continental and Delta Airlines have all made moves to replenish and replace older airplanes. During the 2005-2007 order boom, no US airline made any big purchases like rival European or Middle Eastern airlines - ageing narrowbody airplanes require something newer than the 737 and A320 families, but isn’t yet available.

With both Airbus and Boeing having hefty backlogs across their model line ups, just how long can US carriers afford to sit on the sidelines?

Delta will no doubt benefit from grabbing Northwest’s 787’s on order, and Continental is already a customer - United and American have much to do to replace and expand their aging fleets - at least in one way, US Airways has been somewhat proactive and snared a variety of Airbus airplanes, including the A350XWB.

Pilot talks have been ongoing between Delta and Northwest - at the heart of the negotiations is the unresolved issue of pilot seniority, without agreement will likely mean no merger at all. Other carriers will certainly be keeping a keen eye and ear to avoid loggerheads in their own merger talks. Delta has already made clear that it will not press ahead until this and other key labour issues are resolved.

In an age of high fuel costs, indefinite courting with no prospect of a long term future is construed as a waste of time, money and resources - all of which can be better utilised to lower ones cost base.

While the path to the alter may seem straightforward, the path after the marriage ceremony is certainly not as clear cut.

6 comments April 3rd, 2008