The only certainty about suggestions of a merger between Delta Air Lines and Continental Airlines is that it would create the world's largest airline. Beyond that analysts remain split as to whether such a deal would make strategic sense. The only clear winner is David Bonderman, who leads Continental's controlling shareholder group, Air Partners, and has made no secret of his desire to sell at the top of the market.
Bonderman has seen Air Partners' stake appreciate since leading the airline out of Chapter 11 and his group recently sold warrants back to the carrier. Continental's chairman Gordon Bethune was among 10 senior managers to disclose substantial sales of Continental stock in November.
Neither airline is commenting on the discussions, which are believed to date back to last summer. Some observers believe the talks may have been leaked to move them on to a faster track.
A merged airline would have annual revenues of some $18 billion, eclipsing American and United - Delta's revenues totalled $12.25 billion in the year to 30 June 1996 while Continental notched up $5.82 billion in 1995.
The combination of the two airlines' route structures appears to be largely complementary. Delta has been scaling back its Dallas-Fort Worth hub, but could make good use of Continental's Houston base. Continental's routes to Central and South America would boost Delta's minimal presence in those markets. The combination would be much stronger across the Atlantic, especially as both carriers signed codeshare and marketing deals with Air France last November. However, Continental's hub at Newark would conflict with Delta's major international gateway at New York/JFK.
Although Delta's takeover of Western went smoothly, Sam Buttrick, airline analyst at PaineWebber, points out that Delta's workforce is still smarting from the pain of its takeover of Pan Am's international routes. This deal put Delta into debt for the first time and led to severe operational and employee integration problems; Buttrick does not believe that memory can be easily overcome.
While first news of the talks in early December excited Wall Street, sparking heavy trading in Continental shares, the atmosphere cooled considerably just days later when it became clear that the talks may have been underway for some time without making any visible progress.
Analysts seemed enthusiastic about the potential for a new round of airline consolidation should the Delta-Continental deal succeed. With Steve Wolf at the helm, US Airways has been viewed as the prime takeover target despite previous rejections by both American and United.
Source: Airline Business
