Delta-Northwest Merger Should Provide Synergies, But Complications May Arise

4/15 - Goldman Sachs - "We are not surprised by the nature or timing of this well-telegraphed merger between NWA and DAL. The announced transaction suggests that the merged companies could achieve synergy savings of $900m-$1b from the optimization of the combined airline’s fleet and an expanded global network plus overhead savings – a level that if achieved would offset our combined loss estimate for the 2 airlines in 2009 of $915m. The merger requires DoJ approval which the airlines expect to receive by the end of the year."

"But consolidation in any industry – not least the airline industry where labor strife historically weighs on mergers – is a complicated corporate exercise and may not result in as many benefits as first thought."

"We believe that with Northwest’s announcement last night, Continental Airlines can now buy out Northwest’s “golden share” in Continental for $100, freeing up Continental to pursue its own strategy – a positive for CAL. Speculation has ebbed and flowed over the past few months about a possible merger between CAL and United Airlines (tkr: UAUA) – a combination that could take further capacity out of the US system – helping the surviving carriers."