Introduction
Mergers and Acquisitions have been practiced in the past decade at every level and in every industry, the revealing facts suggest that only 25% of the mergers are successful. The mergers have more to do with the economic goals, it is believed that the key objectives are to have synergy (leading to economies of scale), a greater market share, catering to new market segments, more profitability, and employee retention (Pablo and Javidan 2004). The objectives of Northwest Airlines and Delta airlines could no more be different than the above stated (if the merger takes place).
Features of both airlines
It is believed that both of these airlines have struggled a lot particularly after 9/11 (alongside many other airlines). Northwest Airlines, having nearly 250 destinations and a fleet size of nearly 350 airplanes, had filed for bankruptcy protection due to the prevailing issues, also the labor union issues had forced the airline to increase the costs. The airline decided to reduce its fleet size to approximately 50 and also decided to cut off employees (which deeply affected the US economy). The others to file the bankruptcy protection include Delta airlines (having a fleet size of nearly 450 airplanes and 325 destinations), which was in a similar situation and reduced the hourly wages by almost 33%. The worst situation rose in 2005 when the airline reduced its fares by 50% in all the classes. The other strategies by both the airlines included discontinuing unprofitable destinations and starting up with the profitable ones, also they decided to buy stakes in budget airlines as they make more profit with reduced costs.
As long as both these airlines have suffered a heavy loss in the past and both are relocating their strategies and trying to avoid further cost reductions, it sounds good to have a merger between the two. The efforts are usually referring to the objective of attaining synergy in the operations of the two airlines. There would be a greater number of destinations served (which naturally suggests a greater market share with reduced competition), the shareholder value would increase by $ 1 Billion annually (due to synergy), the airline routes will not be swapped due to the customer loyalty (brand preference), the strength of Northwest airlines in Asia complements the strength of Delta airlines in the Latin America (they will together be stronger globally), the cost synergies would give the two airlines a greater power to face the networking and fuel price issues.
The other important features of the merger include the liquidity which would be $ 7 Billion representing the strongest balance sheet in the industry (it is having more to do with gaining investors’ attention). Above all, the employees would benefit from the merger the most, the contracts of pilots would be extended and there would be an opportunity for them to have a stake of almost 3.5% in the airline. As long as the two airlines complement each other, there would be ease in the operations and so they can go together to charge a higher price from the customers (to relocate the position in the market), to increase the revenue more attention could be given to the marketing strategies such as greater concentration on loyalty programs, etc.
Conclusion
To conclude the merger, it can be said that it is the right time for both of these airlines to make the most of it. The annual costs with the help of synergy are likely to reduce by $ 30 to 40 Million, the debt could be reduced to the lowest in the industry while the EBIT could be increased to the highest (2010 projection). The merger would allow the two to easily adapt the technological changes and hence it provides an opportunity to be the most innovative and leading airline in the industry.
References
Pablo, A.L. & Javidan, M. (2004). Mergers and Acquisitions : Creating Integrative Knowledge: Strategic Management Society Book Series. Malden, MA: Blackwell Publishing.
Creating America’s Premier Global Airline (2008). Web.
Delta Air Lines and Northwest Airlines merger to create world’s biggest carrier (2008). Web.