Paul Lewis/WASHINGTON DC
Alliance partners Northwest Airlines and Continental Airlines have struck a tentative deal to dilute their equity relationship in a move to resolve a long running anti-trust dispute with the US Department of Justice (DOJ). The airlines had been discussing a deal for some time, but failed to reach a compromise until after the start of a hearing into the DOJ's case earlier this month.
Under a provisional agreement hammered out by the airlines, Northwest will reduce its holding in Continental from 14% to 7%. As part of the 25-year deal Northwest will continue to own 2.6 million Continental B-class shares and retain the right to "block certain business combinations and similar change of control transactions involving Continental and a third party major airline".
Continental will repurchase the 6.69 million A-class shares still held by Northwest for $450 million, significantly less than the Minneapolis-based carrier is believed to have originally demanded. Continental plans to part-fund the transaction with the proceeds of a $250 million securities placement, which will be convertible to Continental B-class shares in 2030.
The DOJ has welcomed the deal, although like the airlines' boards it has yet to approve it, welcoming the outline agreement as a "victory for consumers" and granting a seven-day stay in trial proceedings to allow it to be finalised.
Washington sees Northwest's $400 million purchase of a controlling interest in Continental as anti-competitive and has been seeking to block to deal.
Northwest's president John Dasburg says that the objective "has always been to build a successful alliance and to ensure the independence of Continental", and adds the deal does this "while at the same time recouping its investment".
Mesaba Airlines' board of directors has meanwhile convened a special committee to consider Northwest's unsolicited take-over bid (Flight International, 7-13 November). The airline already owns 28% of Mesaba and full ownership would put it on an equal footing with fellow Northwest Airlink carrier Express One, while strengthening its claim to the major's planned buy of 100 regional jets. Mesaba is of strategic importance to Northwest, accounting for 800 of 2,500 daily services and a "substantial amount of total revenue," says Mesaba president, Paul Foley.
Source: Flight International
