Delta CEO Opens Door To Consolidation
Delta Air Lines positioned itself as a buyer in the US airline industry as its new chief executive said the carrier wanted to take a leading role when the industry consolidates.
"We fully expect that this evolution toward a more consolidated industry will continue," said Richard Anderson, who took over as Delta CEO in September.
"Ultimately, it's our goal to be the undisputed leader in the airline industry. To achieve that goal, we must be on the leading edge of change to keep pace in this dynamic business environment," Anderson, the former CEO of Northwest Airlines.
"There are obvious benefits that could accrue from consolidation for our shareholders and employees," said Anderson. "We are evaluating the best path forward for Delta."
He said Delta, which emerged from bankruptcy at the end of April, would be best served by being a suitor rather than a target, but cautioned that his comments were "not a sign that anything is imminent."
Earlier Tuesday, Delta posted higher-than-expected quarterly profit on tighter cost controls and record revenue boosted by more international flights.
With the consolidation comments, Anderson joins Glenn Tilton of United Airlines parent UAL and Doug Parker of US Airways as the leading proponents.
"This is definitely something that is new for Delta, given that they were very, very aggressive during their bankruptcy proceeding in fending off US Airways' overture," said Brian Nelson, an analyst with Morningstar. "I think it's a 180 for Delta."
Delta vigorously opposed a hostile bid by US Airways, mobilizing its employees to help fend off the unwanted approach. A pro-consolidation stance could be taken as a slight by some Delta employees and could strain relations.
The Association of Flight Attendants is currently seeking to unionize Delta's flight attendants, appealing in part to uncertainty posed by potential mergers.
Delta and Northwest have often been rumored as potential partners since they both sought bankruptcy protection on the same day in 2005. Also, analysts say that Anderson has a close relationship with Northwest CEO Doug Steenland.
But so far it has been all talk. Airline mergers are hard to pull off and fraught with risk. Management differences, disparate fleet types, and labor conflicts can scuttle a deal that looks good on paper.
"These airlines like to talk a lot about consolidation because it gets the market excited," said Morningstar's Nelson. "Any time that a CEO can somehow put a merger premium on his stock price, he's going to go ahead and try to do that."
Some industry experts agree airlines that want to merge may stand a better chance of passing antitrust review during the Republican Bush administration compared with a potential Democratic one beginning in 2009.
"That's the recommendation I would give," said Edward Faberman, an aviation attorney with Wiley Rein in Washington.
He said the Justice Department has not moved to stop airline or other mergers generally, although the proposed US Airways/United deal collapsed in 2001 over competition concerns.
Antitrust officials did not block the American Airlines/TWA deal in early 2001 and the US Airways/America West merger in 2005. Both of those, however, involved failing companies.
"It depends on the scenario that's presented. I think if there were some economic difficulties -- fuel prices going up, certain other things -- I'm not sure Justice would aggressively attack it," Faberman said.