US airlines Delta and Northwest near merger after year of talks

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Executives at two of the biggest US airlines, Delta and Northwest, were locked in the final stages of merger talks yesterday that would create the world's largest passenger carrier, and just might provide a solution to the losses that have plagued the industry.

Shares in both airlines rose on optimism that this time – after a string of false alarms since talks were first mooted a year ago – a deal might finally be ready to be announced.

The talks have been given a new urgency by the deteriorating conditions in the industry. Four US carriers have gone bust or stopped flying in the past fortnight. Rising jet-fuel prices have eaten into already fragile profitability, and there are concerns that a regulatory crackdown – which grounded thousands of flights for safety inspections this month – and a weakening economy presage more woes to come.

Analysts believe that combining some of the biggest players in a fractured market, where even the leader, American Airlines, carries barely 15 per cent of domestic passengers, could finally give the airlines a chance to rationalise routes, end a perennial fare war and drive down costs. Rivals such as Continental and United are closely watching the Delta-Northwest deal and are expected to respond with merger talks of their own.

Delta's chief executive, Richard Anderson, met his opposite number at Northwest, Doug Steenland, at the weekend and the men are believed to have agreed to aim to announce a deal as early as today (though neither board, at that point, was ready to give a green light). On previous occasions, the boards have balked at agreeing a deal without the approval of pilots unions, which could strike if they believe the integration of the two airlines will lead to cuts or disadvantage some senior pilots.

Dave Stevens, head of Northwest's pilots group, said his 5,000 members would oppose any deal not in the interests of employees and passengers. Delta was believed yesterday to still be hopeful of getting pre-approval for a merger from its 6,000 pilots.

"The higher fuel prices go, and the more the economy weakens, the better are the chances for mergers with or without pilot co-operation up front," Ray Neidl, an analyst at Calyon Securities in New York, has told clients. "Eventually, pilot co-operation will be necessary, but the industry is in a crisis, and the pilots have to decide if they are going to be part of the problem or a part of the solution. They have a real interest in trying to make this work, and should not be acting as obstacles to a successful integration with their futures dependent on this happening."