Delta, Northwest and the Airplane! Industry

Captain Rex Kramer: Do you know what it's like to fall in the mud and get kicked, in the head, by an iron boot? Of course you don't--no one does--that never happens.

Airplane! (1980)

Doesn't that just sum up how the airline industry is feeling after jet fuel prices have risen north of 77% in the past year.

This morning it's official: Delta and Northwest have announced they are merging. The new combined entity will be called Delta. It values Northwest at a 16.8% premium to where the stock closed yesterday. Northwest shareholders will receive 1.25 of the new Delta shares. Delta shareholders will get one share of the new company for their existing Delta share. The most interesting point in my estimation is that Delta pilots will get a 3.5% equity stake and the non-pilot employees of both companies will get a 4% equity stake. The question now is what the Northwest pilots feel about this deal.

A couple things that I'm jazzed up about this morning.

More mergers are on there way. They have to be! Costs due to inflation are getting out of control. Just look at oil and gasoline prices on a year-over-year basis. Companies (Fortune 500 companies) are starting to seriously feel the pinch. They will need to cut costs and adjust for rising commodity costs. This could lead to more consolidation and in turn further job losses. Good news for the markets. Stocks like cost cutting and increased efficiencies, but the economy does not like job cuts. Just look at the 230k plus jobs lost in the first quarter.

Look at this deal. The combined Delta Northwest has a total of 80,000 employees. No wonder Minnesota Democratic Congressman Oberstar, Republican Sen. Norm Coleman and Governor Tim Pawlenty are against the merger. They're concerned about job losses in Minnesota, Northwest's hub.

Another point, Delta and Northwest are hoping to get this deal done by January. Take a guess why? Hello....they're not stupid! They want to get this deal done before the Bush Administration leaves the White House. You can bet that other corporations will be thinking the same thing. This administration has been merger friendly and the risk of a change in leadership and tax policies will make more companies feeling the pinch think about it.

What will this specific deal mean to you and me?

Fares will go higher. Not necesssarily because of the increased consolidation and bankruptcy filings by four carriers in the past month, but because of jet fuel prices. In January and February domestic ticket prices were up 6% while jet fuel was up 55%. What percent of the ticket price goes toward fuel? 34%! It was just 15% in 2000. Not good!!!! Believe me the price increases we see will not help the airlines enough. 

Ok I know what you're thinking. Give me some more Airplane quotes. Here you go. Some of the best in the motion picture industry !!!!!!
Rex Kramer <http://www.moviemistakes.com/name286> : Striker, listen, and you listen close: flying a plane is no different than riding a bicycle, just a lot harder to put baseball cards in the spokes.
Steve McCroskey <http://www.moviemistakes.com/name72> : Looks like I picked the wrong week to stop sniffing glue.
Randy:

There's been a little problem in the cockpit, and I was . . .
Ted Striker:

The cockpit--what is it?
Randy:

It's the little room in the front of the plane where the pilots sit, but that's not important right now.