(Agencies)
Updated: 2008-04-15 09:39

US-based non-pilot employees of both companies will get a 4 percent equity stake in the new airline when the deal closes, Delta said.

The announcement comes a year after the two carriers emerged from Chapter 11 bankruptcy protection. Both carriers are losing money again but are in much better shape than the four much-smaller airlines that have filed for bankruptcy or gone out of business in recent weeks.

The deal will need antitrust approval, and integrating the work forces of fully unionized Northwest and Delta, where pilots are currently the only major unionized work group, will be tricky.

The joining of Atlanta-based Delta and Eagan, Minn.-based Northwest, if approved by regulators and shareholders of both companies, will result in combined annual revenue of $31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp.'s American Airlines for the top spot in the US.

It would be the biggest carrier in the world in terms of traffic, before any further domestic capacity cuts and any divestitures that might be required by antitrust regulators.

The agreement comes after several months of merger discussions between Delta and Northwest and at one time between Delta and Chicago-based UAL Corp.'s United Airlines. Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap, even though a Delta-United combination could create more scale and have greater synergies.

Years of mounting losses forced Delta and Northwest to file for bankruptcy protection in New York on Sept. 14, 2005. Both emerged from bankruptcy as leaner carriers last spring, after shedding billions in costs during their reorganizations.

While in bankruptcy, Delta fended off a hostile takeover bid by Tempe, Ariz.-based US Airways Group Inc.

Delta said its plan to remain on its own would create more value than US Airways' $9.8 billion bid, which Delta argued would not pass regulatory hurdles. The value argument never materialized, as Delta's post-emergence market capitalization started out $1 billion less than US Airways' bid and less than the $9.4 billion to $12 billion Delta projected. Its market value has fallen precipitously in the months since amid airline industry woes, including high fuel prices and a general inability to gain traction raising ticket prices.

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