Filed by Northwest Airlines
to Rule 425 under the
Act of 1933 and deemed filed
to Rule 14a-12 under the
Exchange Act of 1934
Company: Northwest Airlines Corporation
File No.: 0-23642
filing (including information included or incorporated by reference herein)
includes “forward-looking statements” within the meaning of the safe harbor
provisions of the United States Private Securities Litigation Reform Act of
1995. Words such as “expect,’ “estimate,” “project,” “budget,”
“forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,”
“believes,” “predicts,” “potential,” “continue,” and similar expressions are
intended to identify such forward-looking statements. These
forward-looking statements include, without limitation, Delta's and Northwest’s
expectations with respect to the synergies, costs and charges, capitalization
and anticipated financial impacts of the merger transaction and related
transactions; approval of the merger transaction and related transactions by
shareholders; the satisfaction of the closing conditions to the merger
transaction and related transactions; and the timing of the completion of the
merger transaction and related transactions.
forward-looking statements involve significant risks and uncertainties that
could cause the actual results to differ materially from the expected results.
Most of these factors are outside our control and difficult to
predict. Factors that may cause such differences include, but are not
limited to, the possibility that the expected synergies will not be realized, or
will not be realized within the expected time period, due to, among other
things, (1) the airline pricing environment; (2) competitive actions taken by
other airlines; (3) general economic conditions; (4) changes in jet fuel prices;
(5) actions taken or conditions imposed by the United States and foreign
governments; (6) the willingness of customers to travel; (7) difficulties in
integrating the operations of the two airlines; (8) the impact of labor
relations, and (9) fluctuations in foreign currency exchange
rates. Other factors include the possibility that the merger does not
close, including due to the failure to receive required stockholder or
regulatory approvals, or the failure of other closing conditions.
Northwest caution that the foregoing list of factors is not exclusive.
Additional information concerning these and other risk factors is contained in
Delta’s and Northwest’s most recently filed Forms 10-K. All
subsequent written and oral forward-looking statements concerning Delta,
Northwest, the merger, the related transactions or other matters and
attributable to Delta or Northwest or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statements above. Delta
and Northwest do not undertake any obligation to update any forward-looking
statement, whether written or oral, relating to the matters discussed in this
Information About the Merger and Where to Find It
connection with the proposed merger, Delta will file with the Securities and
Exchange Commission (“SEC”) a Registration Statement on Form S-4 that will
include a joint proxy statement of Delta and Northwest that also constitutes a
prospectus of Delta. Delta and Northwest will mail the joint proxy
statement/prospectus to their stockholders. Delta and Northwest urge
investors and security holders to read the joint proxy statement/prospectus
regarding the proposed merger when it becomes available because it will contain
important information. You may obtain copies of all documents filed with the SEC
regarding this transaction, free of charge, at the SEC’s website (www.sec.gov).
You may also obtain these documents, free of charge, from Delta’s website
(www.delta.com) under the tab “About Delta” and then under the heading “Investor
Relations” and then under the item “SEC Filings.” You may also obtain these
documents, free of charge, from Northwest’s website (www.nwa.com) under the tab
“About Northwest” and then under the heading “Investor Relations” and then under
the item “SEC Filings and Section 16 Filings.”
Northwest and their respective directors, executive officers and certain other
members of management and employees may be soliciting proxies from Delta and
Northwest stockholders in favor of the merger. Information regarding the persons
who may, under the rules of the SEC, be deemed participants in the solicitation
of Delta and Northwest stockholders in connection with the proposed merger
will be set forth in the proxy statement/prospectus when it is filed with the
SEC. You can find information about Delta’s executive officers and directors in
its Annual Reports on Form 10-K (including any amendments thereto), Current
Reports on Form 8-K and other documents that have previously been filed with the
SEC since April 30, 2007 as well as in its definitive proxy statement to be
filed with the SEC related to Delta’s 2008 Annual Meeting of Stockholders. You
can find information about Northwest’s executive officers and directors in its
Annual Reports on Form 10-K (including any amendments thereto), Current Reports
on Form 8-K and other documents that have previously been filed with the SEC
since May 31, 2007 as well as in its definitive proxy statement to be filed with
the SEC related to Northwest’s 2008 Annual Meeting of Stockholders. You can
obtain free copies of these documents from Delta and Northwest using the contact
Lines, Inc. and Northwest Airlines Corporation have created a website at
www.newglobalairlines.com with information about the merger. The website
includes the information being filed herewith.
following is a transcript of a conference call hosted by Delta Air Lines, Inc.
and Northwest Airlines Corporation on April 15, 2008.
Greer;Delta Air Lines;Director, IR
Richard Anderson;Delta Air Lines;CEO
Steenland;Northwest Airlines;President & CEO
Bastian;Delta Air Lines;President & CFO
Hauenstein;Delta Air Lines;EVP, Network & Revenue Management
Michael Linenberg;Merrill Lynch;Analyst
Davis;Northwest Airlines;EVP & CFO
William Greene;Morgan Stanley;Analyst
Raymond Neidl;Calyon Securities;Analyst
Good morning, ladies and gentlemen and welcome to the Delta and Northwest
conference call. My name is Latasha and I will be your coordinator. At this
time, all participants are in a listen-only mode until we conduct the
question-and-answer session following the presentation. I would now like to turn
the call over to Jill Greer, the Director of Investor Relations for Delta Air
Lines. Please proceed.
Greer: Thanks. Good morning and thanks to everybody for joining us on fairly
short notice. Last night, we issued a news release outlining the agreement for
Delta and Northwest to merge. The purpose of our call this morning is to discuss
the agreement and to let you hear you directly from the key executives involved.
The presentation slides for this call were filed on Form 8-K this morning and
are available on the Investor Relations pages of both delta.com and
begin the call with opening comments from Richard Anderson, Delta's Chief
Executive Officer and Doug Steenland, Northwest's President and Chief Executive
Officer. Then Ed Bastian, Delta's President and Chief Financial Officer, will
cover the terms of the transaction, the benefits this transaction brings to our
shareholders, employees and customers and our plans to integrate the airlines to
deliver those benefits.
us for the Q&A today are Dave Davis, Northwest's President -- sorry, excuse
me -- Executive Vice President and Chief Financial Officer; Glen Hauenstein,
Delta's Executive Vice President for Network and Revenue Management; Mike
Campbell, Delta's Executive Vice President of HR and Labor Relations and Ken
Khoury, Delta's Executive Vice President and General Counsel.
get started, please note that today's presentation contains forward-looking
statements that represent our beliefs or expectations about future events. All
forward-looking statements involve risks and uncertainties that could cause the
actual results to differ materially from the forward-looking statements. Some of
the factors that may cause such differences are described in Delta's and
Northwest's SEC filings. With that, it is my pleasure to turn the call over to
Anderson: Thanks and thanks for calling in this morning. I think this has been
probably a little bit of -- so much publicity has already been out that it's --
you have been all expecting it, but we think it is important. It is important
for Delta and Northwest because you all know and understand this business and
this combination gives us the ability, one, to have number one or number two
marketshare in every market in the world. Number two, it builds a much stronger,
more viable airline and the combination creates real synergies, both revenue
synergies and cost synergies and given our previous relationship with Northwest
through the codeshare frequent flyer reciprocity and our domestic alliance and
SkyTeam alliance, we can very rapidly, upon closing, ramp up the integration of
the two carriers.
customer perspective, we add about 6000 city pairs because it really is an
end-to-end connection between the two networks. We have received antitrust
immunity, as you know, last week on the international side; there is really no
overlap. And we already have a head start with the alliance relationship with
very confident with over $1 billion in annual synergies it will be in the
long-term best interest of our shareholders, our employees and our customers. So
bottom line is we think it is a really good fit. It is something you have all
been anticipating for some time and with fuel prices where they are, the
fundamental changes we are seeing in the airline industry, the need to compete
in the open skies arena and the fact that Northwest and Delta really fit well
together because we are the strongest network carriers. The restructuring that
both companies went through last year have created best-in-class non-fuel
balance sheets are in great shape. The route structures have all been
rationalized. We both have very manageable maturities over the next few years,
strong cash position. At combination, the combined entity will have around $7
billion in liquidity and so it puts the combination in a much stronger position
to succeed over the long run in a very competitive marketplace.
is key because the combined carrier will be number one in the US, number one
carrier to Japan, number one US carrier across Europe, number one US carrier in
Africa, the Middle East and India, the number two US carrier in Asia and Latin
America. So it really is the first time that we have a carrier in the United
States that has a complete route network.
think about the background of both Northwest and Delta, this is really the
culmination of a series of transactions that have taken place over three or four
decades. You can go all the way back I think with Northwest to Pioneer and
Bonanza airlines. North Central, Republic, Southern, Hughes Airwest on the Delta
side, Northeastern Chicago and Southern, the Pan Am acquisition, the Western
acquisition and when you think about what deregulation did, this is really the
culmination of that and we are moving to a mature state, a state that will allow
us to provide the kind of returns that the shareholders have long deserved and
provides a much more stable platform for employees.
going to hear now from -- I'll turn this over to Doug and Doug can talk about I
think how this dovetails, but it is a perfect deal. Northwest is a great
airline. Delta is a great airline and this combination is exactly -- exactly
right for all the constituencies and with that, I'll turn it over to
Steenland: Thanks, Richard, and good morning, everybody. From our perspective,
today is truly an exciting day for the employees of both airlines, for our
collective customers, shareholders and the communities that we serve. This
combination is going to help build a stronger, more resilient airline that will
be the leader in creating best-in-class for customers, employees and
shareholders. The transaction is going to provide our customers with a wider
choice of seamless service across a broad, global network and it is going to
substantially improve both the trip itineraries and airport quality. Because of
our complementary end-to-end networks, the transaction will also ensure an
enhanced level of service to large and small communities while also allowing us
to compete more vigorously with foreign carriers in an open skies
This is a
merger by addition. The combination of the two route networks with virtually no
overlap results in a seamless global network thereby offering more choices for
customers and a more stable service for the communities we serve.
will enhance the airline's ability to manage through economic cycles and rising
oil prices and the proposed combination will allow us to better utilize
Northwest's valuable Pacific franchise, better develop both carriers' domestic
hubs and better match the right planes with the right routes.
cost side, the transaction combines the two best-in-class network carrier cost
structures, which will allow us to create a stable platform for future growth.
The economics of the merger are based on expanding the scope of the network,
improving the utilization of our aircraft fleets and combining functions such as
IT to achieve greater efficiencies.
addition, by increasing our value to customers and reducing costs, we will be a
much more competitive airline. Because there is very little overlap between our
route systems, the impact of the merger on competition will be little, if any.
For all these reasons, Delta was Northwest's first choice and I know Northwest
was Delta's first choice in deciding how consolidation should come
Delta-Northwest combination will join two truly complementary geographically
distinct networks to form a truly global airline. Customers would have more
worldwide travel options and improved connectivity from the merger. Importantly,
our SkyTeam partners with us have been through the antitrust review several
times as a result of the six-way antitrust application, which received
preliminary DOT approval last week.
of this, we know that the international competition issues have been addressed
by both the DOT, the Department of Justice, and the EU and there has been found
to have no anti-competitive impact. The transaction will be subject to review by
the European Commission and the competition authorities of several other
countries. Because there is virtually no overlap between the companies' nonstop
overseas routes, the transaction is unlikely to present any issue for overseas
regulators. We also do not expect any issue with the Department of
Transportation's transfer of Northwest's international routes to Delta because
Delta operates only minimal service to Asia.
there is some domestic overlap between the two airlines, it is minimal and
raises no competitive concerns. Only 2% of Delta seats are in direct competition
with Northwest and only 3% of Northwest seats are in direct competition with
Delta. Delta and Northwest overlap in only 12 domestic nonstop city pairs and
all but four of those 12 routes have at least two or more nonstop competitors.
The four single carrier routes make up less than one half of 1% of Delta and
Northwest's combined domestic origin and destination traffic, which amounts to
just over 500 passengers per day. Passengers in those cities -- Minneapolis/St.
Paul, Salt Lake, Detroit and Cincinnati -- will all obtain substantial benefits
from the transaction with new and improved domestic service and there is open
entry at all of those points.
domestic market is highly fragmented. Delta and Northwest's combination of
passenger share would not surpass that of Southwest, which will remain the
largest domestic carrier and no carrier in the domestic market would have
greater than a 20% share.
important to note the dramatic role that low-cost carriers have played in the
shifting landscape of the domestic airline scene. During the last decade,
substantial discount carrier growth has resulted in a more competitive and
fragmented industry than ever before. Since 2000, low-cost carriers have grown
at an annual rate of more than 10% and now carry a third of all domestic
passengers. With this growth, LCCs serve all major cities, including all legacy
carrier hubs and are expanding into smaller cities.
our commitment to serve customers in small communities very seriously. Together,
Delta and Northwest will serve over 140 small communities, nearly double the
amount of our next largest competitor. By aligning our network strengths, we can
enhance service from small communities to new international destinations. As a
result, major international gateways are never likely to be more than one stop
away. In the past, small communities looked to network carriers to take them
around the country. In this new global marketplace, we will be able to take them
around the world.
let me say that from the outset, our position has been that we would only
consider a transaction that benefited all of our key stakeholders, our
shareholders, our employees, our customers and the communities we serve and with
the announcement, we are confident that we have met this objective and we have
taken a big step in securing the future of the airline while also returning a
premium to Northwest shareholders. I would now like to turn the call over to Ed
who is going to provide more specific details on the transaction.
Bastian: Thanks, Doug and good morning, everybody. Thanks for joining us this
morning. The strategic foundation for this merger is sound. It has been
structured to generate substantial value for all stakeholders, which we consider
to be very important, and create a platform for profitable international growth.
We are well-positioned for a successful integration and once integrated, will
have the foundation in place to secure a strong future, one that is more
resilient to economic volatility, with momentum in improving revenues, combining
a best-in-class cost structure and together with an industry-leading balance
transaction is about creating a durable franchise, one that can withstand the
economic volatility, but also can be positioned for profitable growth. We are
committed to a strategy of international expansion and believe that global
diversification is critical for our future.
complementary international networks enable us to bring unique services to our
existing customer bases. Delta's customers will benefit from Northwest's
extensive Asian network while Northwest customers will have access to Delta's
markets in the Caribbean, Latin America, Middle East and Africa, as well as
additional cities in Europe. Delta and Northwest together will serve more than
390 worldwide destinations, more than any other airline.
SkyTeam alliance will further broaden our global reach and together, SkyTeam
partners will provide access to more than 840 destinations around the world. And
we have the opportunity to bring even more global destinations to our customers
in the future. Our existing order books on the 777-LR and the 787, along with
the new markets this combination will generate will provide us opportunity to
exercise options for up to 20 additional wide body jets between 2010 and 2013,
creating a world of opportunity for our customers.
domestic side, Delta and Northwest each have a unique regional presence in very
different customer bases with Delta strong on the East Coast and trans-con
traffic and Northwest strong in the central US. Because this is an end-to-end
merger, there is no need for hub closures as a result of this combination. In
fact, we have the potential to add domestic routes and shorten routings through
expansion of hub service. Each airline has regional strength markets that would
substantially benefit from the additions made possible by combining Delta and
Northwest's complementary networks.
complementary route structures allow us to create a globally diverse network
with a combined domestic international mix of 60/40. Over time, we expect to
move this mix closer to 50/50. We will also have a more diversified footprint
within the domestic and international markets. On the domestic side, we will
have no more than one-third of capacity in any one region. Internationally, we
will have just less than half of the international capacity going to Europe, a
third going to Asia and the remainder going to Latin America, Africa, the Middle
East, and Canada. By diversifying capacity around the world, we build a natural
hedge against seasonal demand shifts and regional economic weakness, positioning
us for long-term success and increasing financial stability.
regards to specifics on the transaction, this will be an all stock transaction
with a combined enterprise value of approximately $18 billion. Northwest
shareholders will receive 1.25 shares of Delta common stock for each Northwest
share. This represents roughly a 17% premium to Northwest shareholders based on
yesterday's closing price. The company will be named Delta with world
headquarters in Atlanta and executive offices in Minneapolis/St. Paul, New York,
Tokyo, Amsterdam and Paris. The Board will be comprised of 13 members; the
breakdown is seven directors from the current Delta Board and five members from
the current Northwest Board. In addition, ALPA will have a full voting Board
experienced management team will be running the business. Richard will continue
to lead the company as Chief Executive Officer and Dan Carp will remain as
Chairman of our Board of Directors. From Northwest, Roy Bostock will become the
Vice Chairman of the Board and Doug will take a seat on the Board. I will remain
in my role as the President and Chief Financial Officer of Delta.
combination will make Delta a globally competitive airline that can and will
deliver value for our shareholders. We expect to generate substantial recurring
synergies, more than $1 billion a year. I will break these out in detail
shortly, but at a high level, the majority of the benefit comes from
improvements we generate with a more comprehensive diversified route system and
more effective aircraft utilization.
also cost benefits from reduced overhead and improved operational efficiencies.
These savings, a portion of which will be reinvested in the new company
employees as we harmonize wages and benefits, preserve and improve upon the
best-in-class cost structure that both companies achieved through their hard
work over the restructuring of the last several years.
transaction will be accretive for all Delta shareholders in the first year,
excluding one-time costs. Including one-time costs, the transaction will be
accretive by the second year of operation. The merger will create a strong
financial competitor with a durable foundation, helping to protect the benefits
of the restructuring from fuel prices and economic cycles, positioning us well
for the future.
aware of the difficulties airlines historically have had in realizing synergies
because of integration challenges, so we have deliberately structured this
transaction to address many of those issues on the front end so that we can
quickly begin realizing benefits and accelerate the integration of the two
airlines. We expect the full run rate of synergies to be achieved no later than
2012, but our goal is to achieve all synergies as quickly as possible. The new
Delta pilot agreement, combined with the current Northwest contract, allows us
to realize the bulk of the revenue synergies prior to reaching a joint pilot
common SkyTeam alliance was a key factor in the decision to combine Delta and
Northwest. As alliance partners, we already have partially integrated IT systems
and are positioned to fully integrate systems to coordinate schedules and
frequent flyer benefits.
network side, we expect to generate about $700 million to $800 million in annual
synergies, starting off at approximately $200 million in the first year and
getting to full run rate by 2012. Putting that in context, these synergies would
increase unit revenues by roughly 2% annually through improved traffic mix,
higher yields and increased traffic, a goal we feel quite confident in
delivering. More than half of the network benefits will come from fleet
optimization. Delta and Northwest each bring aircraft that fill gaps in each
other's fleet, Delta with mid-gauge international aircraft and Northwest with
100-plus seat domestic aircraft and large-gauge international aircraft. The
larger, more diverse fleet will give us the gauge and range flexibility to
better match capacity with demand and to adjust for seasonal demand
it more simply, we will always have the right size aircraft for any route. We
expect to ultimately reallocate 50% of the international fleet and 10% of the
domestic fleet to improve profitability. These changes will allow us to move
incremental capacity into high demand markets such as Tokyo, Sao Paulo and Tel
Aviv, strengthen our joint venture markets by increasing capacity to improve
connections and increase revenues by better matching aircraft range capabilities
with the geographic location of our hubs.
network size and scope from this combination will drive higher loads and yields
due to increased customer loyalty, higher penetration amongst the corporate
market and improved mix of business passengers. We expect to gain value from
share shift as customers become loyal to a single - and the best - frequent
flyer program and global alliance. We also expect to see an increase in business
travel as we add schedule options to major business centers and compete more
effectively for global corporate contracts.
combination also creates the opportunity to add new nonstop flights from the
combined hub portfolio, linking Asia and the heartland to the southeastern US,
Europe and Latin America. The new optimized network will create a compelling
package of worldwide destinations that no other US carrier can match.
Ultimately, this global network will support our revenue plan going
expect to generate incremental value by combining the independent Air France
Delta and KLM Northwest joint ventures. The combined Delta-Northwest network
will allow us to further optimize the flying within the joint
preliminary approval for four-way antitrust immunity in hand, we are in position
to see the benefits beginning in 2009 as antitrust immunity allows us to better
manage capacity, scheduling and pricing. The four carriers will have
approximately 27% of transatlantic capacity, leading the industry and within the
single joint venture we will have service from four of the world's leading
gateways -- New York, Amsterdam, Paris and Atlanta -- something no other global
combination can replicate. The combined joint venture also builds a foundation
for the future. The European sales and distribution strength of Air France-KLM
will play an important role in future international growth within the joint
majority of the benefits of this transaction are on the network side, there are
also considerable cost reduction opportunities that can be achieved. We estimate
there are $300 million to $400 million in net annual cost synergies, excluding
one-time merger-related costs. We can achieve significant savings from the
combination of our sales agreements and vendor contracts and more efficient
operation in our airport facilities. We will also achieve savings from
streamlining overhead structures, redundant facilities and our technology
integration. In essence, the scale this combination provides will drive
considerable efficiency across all areas of the business. The value of the cost
synergies will be somewhat offset by the costs of harmonizing the pay and
benefits for the employees of the combined carrier.
our low-cost structure is key against fuel price volatility and foreign
competition. Through the restructuring efforts of the past few years, Delta and
Northwest have achieved the lowest mainline non-fuel cost of the full-service
network carriers. The cost synergies we can achieve in this transaction will
allow the combined carrier to maintain and ultimately improve upon this
best-in-class cost structure. This will provide a significant strategic
advantage for Delta; not just against our domestic competitors as illustrated
here, but also against the foreign flags and their higher cost
We do not
expect the one-time cash costs related to the transaction to exceed $1 billion.
About half which will have P&L impact going forward, while the remainder
will be capitalized or incorporated into goodwill. These costs will be for the
operating and IT transitions, as well as other transaction costs. For the
operating transition costs, we will be moving to a single operating certificate,
changing aircraft interiors and liveries and updating branding at gates,
curbside and baggage areas of our airport facilities. There will also be
technology transition costs as we migrate systems and train employees on these
tenet of this merger is to continue to maintain an industry-leading balance
sheet. As in all equity transactions, this merger will not increase our combined
debt. Our projected net debt to revenue and EBITDAR coverage ratios will be
industry-leading and better than either the Delta or Northwest standalone
projections. At closing, we expect to have nearly $7 billion in total liquidity,
which includes the undrawn Delta revolver of $1 billion. We expect the combined
airline to achieve over $4 billion in free cash flow from 2009 through 2011.
This demonstrates again the unique ability of this merger to combine the
strengths of two great companies to create a platform for improved durability in
a financially challenging industry.
from our employees is critical for success. To this end, we have reached an agreement with Delta
MEC leadership for a three-year extension to the current Delta pilot agreement.
As part of that extension, the Delta pilots have agreed to unlimited codeshare
abilities with Northwest. To be clear, it is our ability to put the Delta code
on all Northwest flights and other scope modifications, which will allow us to
quickly begin achieving network synergies. In return, they will receive a 3.5%
equity stake in the new airline and a wage increase. The 2009 increase over
current Delta books is 3.5%. As you know, we have an open contract post 2009 and
the negotiated increases for 2010 through 2012 all in are 4% in 2010, 4% in '11
and another 4% in 2012.
forward to discussions with the pilots at Northwest to reach a combined
collective bargaining agreement. We expect to be in negotiations with the
Northwest pilots during the regulatory review period and our goal is to reach
agreement with the Northwest pilots on a combined collective bargaining
agreement prior to the close of the transaction.
structuring this transaction, we took steps to ensure that our employees are
committed to a successful integration by displaying our commitment backing them.
We plan to make the distribution of stock to all US non-pilot employees, giving
them an ownership stake of 4% in the combined airline. Employees will have the
opportunity to benefit from the success of integration and the financial
security of a much more durable airline.
remain committed to achieving industry standard pay for our front-line employees
and will grant Delta employees increases toward that standard in 2009. Our
commitment to our employees is to get them to an industry standard no later than
the end of 2010.
non-pilot employees will continue to receive the schedule pay increases that are
included in their collective bargaining agreements. We are committed to
harmonizing our labor rates and benefits once the representation for our
non-pilot employee groups is established. Longer term, this combination provides
our employees job stability, job growth opportunities, as well as the
opportunity for financial reward.
improved financial position will also allow us to make investments in the
products and services our customers value. We know they want the best travel
experience from booking to baggage, which requires investments in technology,
fleet and facilities. To achieve this, we plan to continue to deploy kiosks,
implement wireless tools, outfit new delivery aircraft with lie flat seats and
in-flight entertainment, upgrade our existing fleet with new products and
technology and implement technology to track bags and reduce passenger
inconvenience during delays and cancellations. Reinvestment in the product and
facilities of our combined airlines is a critical need, an objective that this
of timelines, because this is a merger of complementary networks with almost no
route overlap, we believe it is reasonable to expect regulatory approvals to be
finished in time to complete the transaction by the end of this year, so we will
move quickly with the Hart-Scott-Rodino and other regulatory
merger will also be subject to the approval of shareholders of both Delta and
Northwest, which we are targeting for later this year. Following shareholder
approval and the completion of the regulatory reviews, we would then close the
transaction. Throughout this period, we will be developing detailed transition
plans so that we can immediately begin integrating the airlines upon
summary, this is an exciting day for our shareholders, our employees and our
customers. By creating a globally competitive airline, we will better position
the airline for profitable growth and enhanced shareholder value, create a
financially stronger company with greater stability and opportunities for our
employees and improve our network and products for our customers.
done this in a fashion that is truly unique in that it generates substantial
value for all stakeholders while not reducing competition domestically. We have
the right team in place and we are confident in our ability to integrate the
Delta and Northwest teams and begin realizing the substantial benefits we have
of the entire Delta and Northwest team, I want to thank you all for joining us.
Operator, we are now ready to begin the Q&A session.
Chase, Lehman Brothers.
Chase: Good morning, everybody. Congratulations. I am sure you have -- after
what appears to have been a long while at this. Long list of questions here. I
will limit it to a couple. Can you just sort of elaborate a little bit on the
cost side of the synergies, Ed? It was a little unclear to me when you said the
$300 million to $400 million, whether that was inclusive of the decrement you
expect from wage harmonization as you are calling it or would that -- would
harmonization subtract from that $300 million to $400 million?
Bastian: No, Gary, thanks. That's a great question. That is inclusive of the
decrement we expect when we ultimately harmonize all employee labor rates and
the benefit costs. So that number in gross terms is a fair bit larger than the
$300 million to $400 million number. We are looking at gross terms somewhere in
the $600 million, $700 million range in terms of gross cost efficiencies from
the transaction. But over time, as we do harmonize and bring all employees to a
Delta scale, there will obviously be a cost of that.
Chase: Okay, two other quick ones. Could you just -- when you talk about the
benefit from fleet rationalization, in essence, are you suggesting that, with
better use of fleet, you can generate more revenue? I mean isn't that a share
shift argument or am I thinking about that the wrong way?
Bastian: No, you are not thinking about that the wrong way. We are looking at
this somewhat as a share shift in some opportunity and what we are trying to do
is better calibrate the combined networks to the fleets that we both
respectively own, bringing some of the larger Northwest international metal to
places like Atlanta and then also bringing some of our midrange international
aircraft to the Detroit and Minneapolis hubs of Northwest as an illustration of
that. So share shift as a result of that will occur, but it is also better
calibrating capacity with the right size of the market.
Anderson: Gary, this is Richard. The other thing to remember in the Delta fleet,
our shell size goes from 76 to 150 and on the top side of the fleet, we don't
have an airplane that has over 275 seats. So when you think about the size of
the Northwest fleet with A330-300s and 74(7)-400s and the size of our hub in
Atlanta and the size of the shell size at Delta, you actually end up with the
ability to put the exact right size airplane that the economics of every
combined route demands and there is real -- there's profit value in that. In the
case of -- domestically, having A-319s in some of our hubs like Cincinnati
westbound instead of a 757 is a profit-maximizing move. Glen, do you want to add
Hauenstein: Yes, I would want to add that we also have to re-optimize the entire
network; not only from a gauge perspective, but from the markets we fly. And I
think a great example of that would be the fact that we have, of course, the
largest market portfolio at JFK and we don't fly to Narita. So as you can see by
putting these two carriers together, the opportunities that we create amongst
the network I think are just as great as the gauge plays within the network. So
I think there are very exciting pieces of this network optimization that occur;
not only from new markets, but from gauge re-optimization, as well as really
some rationalization of capacity within the hub structure itself.
Bastian: We are also, Gary, going to hopefully be develop -- develop some
revenue share shift as our customers become loyal to a new and improved frequent
flyer program, the global alliance, being able to go into the corporate
contracting world with a stronger product and stronger mix and a stronger
geographic balance. So all in, the total revenue synergies from the combined
transaction we estimate at roughly a 2% increase in total revenues of the
Chase: Guys, just a quick follow-up and then I'll let somebody else have at it.
You are talking about, if I add that up though, roughly $1 billion in share
shift away from the rest of the industry and I have heard you say that you
expect additional consolidation or at least a lot of people do. Does that $1
billion hold up if we see the rest of the industry consolidate or does it start
Bastian: No, we are looking at a much lower number in terms of share shift than
that, Gary. I would say less than half of that number that you talked about
would come from pure share shift.
Chase: Okay, thanks.
Michael Linenberg, Merrill Lynch.
Linenberg: Yes, good morning, all. I guess just a couple of questions here. In
the presentation, I didn't see anything on the NOLs and I think Delta's got just
over $9 billion and I think Northwest has $3 billion. Can this deal be
structured in a way such that you are able to preserve as much of the Northwest
NOLs as possible?
Bastian: Yes, it is, Mike. We were both very cautious through our bankruptcy
proceedings to make certain that we preserved the full value of the NOLs on both
Linenberg: Okay and then just another question here. In the presentation, you
did indicate that you were going to use 100-seat aircraft to up-gauge some of
the regional flying. Now is that currently aircraft that are in the fleet or are
you looking at 100-seaters out there from all the various manufacturers? I guess
presuming even Bombardier as well?
Hauenstein: That is a reallocation of the existing 100-seat fleet to maximize
where it is flown and we think there is a lot of value in putting -- again, as
Richard indicated, we have a big gap in our current network at Delta from 76
seats all the way to 150 seats and we think that having now some airplanes in
the 100 and 120-seat category, we'll really be able to optimize both networks
when you can put them together.
Linenberg: Okay, just to blend the existing 100-seat fleet, I presume that is
the DC-9s, right?
Hauenstein: DC-9s and A319s.
Davis: Yes, Mike, this is Dave Davis. I mean I think the math is essentially
reallocation of existing aircraft and putting DC-9s more optimally on routes
that need 100-seat aircraft, but obviously through time as we continue to need
100-seaters and we need to replace the DC-9s, we would be considering potential
DC-9 replacement aircraft.
Linenberg: Okay and then just my last question and maybe this is somewhat more
conceptual, but -- and I am sure it is also what will help drive this deal in
the first place is a lot of people point to the record high fuel prices. Can you
just talk about what you are seeing in crack spreads? I mean we know oil is at a
record high today, $113 plus or minus a few pennies and you are looking at $30,
$35 crack spreads.
look -- I guess sort of a two-part question -- as we look at the synergy plan
out over the next couple years, what -- sort of what is that long-term view that
you are using for jet fuel prices maybe underlying some of the model here and if
energy prices do remain very high, how do you change, how does the industry
change, assume $3.50 per gallon jet fuel into, call it the sustainable, or into
Anderson: Mike, we -- we are not expecting fuel prices to decline. The model we
have built expects them actually to not just retain the current level, but
actually grow north of here when we built our models. That's for both the crude,
as well as on the crack spread. I think $30 -- I am not sure if that is
sustainable over time, but certainly a crack spread well north of $20 we are
expecting over time.
the nail on the head. I mean this is one of the reasons why this transaction at
this point in time made a lot of sense when we went back and both looked at our
future standalone plans trying to figure out how as individual carriers we were
going to be able to cope with the high price of fuel. We both came to the
realization that we need greater scale and mass, and the combination and
strength of the combined carriers will help us better generate the stability we
need in the face of that fuel volatility.
Linenberg: Okay, thanks and good luck with the process.
Frank Boroch, Bear Stearns.
Boroch: Good morning. Maybe you could give us some sense of what underlying
industry capacity assumptions are in the '09 beyond forecast where you see $4
billion or so of free cash flow generation?
Anderson: We're not -- we have a hard time calibrating after this year, much
less over the next several years. I mean the main thing we looked at, Frank, is
what do we expect? We expect economic growth rates across both the U.S. and
internationally, and we are not expecting any growth domestically on the broader
macroeconomy over the next couple of years, if not a slight decline in the
we are also expecting a slowdown over time. So we are looking at a very mild
rate of growth internationally and virtually no growth
Boroch: How would the merger agreement impact respective thinking about
spin-offs of certain subsidiaries like regional airlines and so
Anderson: This has nothing to do with that.
Boroch: Okay. And last question, would there be any breakup penalties for credit
card partnerships and so forth as a part of harmonizing the frequent flyer
Anderson: Actually, it's at the perfect point in time because both of Northwest
and Delta are coming up on the expiration of their affinity card relationships.
So just about the time the transaction closes, we will be in a position to
maximize the value for our shareholders in those arrangements. So we are
actually looking forward to the prospect of building the largest and strongest
affinity card strategy in the world.
Boroch: That's great. And lastly, Air France had been pretty public about being
interested in coinvesting in a combined entity. I guess do you see a role down
the road for a partnership like that, or an equity stake?
Anderson: Well, first of all, the first thing to know about that is that Air
France and KLM are elated about this transaction because its timing is perfect.
The regulators just last week in both the U.S. and in Europe found that the
alliance among KLM, Air France, Delta and Northwest was pro-competitive, and
cleared 80 regulatory hurdles as if the transaction had been reviewed for a
merger. So that was really the second to last obstacle, and the last obstacle is
the one we announced today.
the position of KLM-Air France, this is really a vision that is coming true
after many, many years of work on our separate bilateral arrangements. So
Jean-Cyril Spinetta is elated that we have announced the merger.
now engage in a process of combining the two separate joint ventures. We signed
our joint venture long-term arrangement last October, and KLM-Northwest is just
about 20 years old and is probably the most well-developed, most profitable of
any flying any airline does anywhere. So we now have this great opportunity to
put them together, and so the French are very supportive.
of equity investment, this combined entity is going to have $7 billion in
liquidity at closing, and we think that we will have the ability to access debt
and equity markets as necessary to make sure we maintain a very strong balance
sheet. So at this point in time, we are just looking forward to renegotiate --
or to negotiating a two-way joint venture agreement with Air
Boroch: The $7 billion in liquidity comment, that implies virtually no cash
degradation I guess from current positions; is that --?
Bastian: Frank, that is our combined projected year-end cash levels at the end
of 2008, plus the revolver capacity that Delta has.
James Higgins, Soleil Securities.
Higgins: Yes, hi. I actually withdrew my question because it was asked already.
Greene: Hi, good morning. I'm wondering if -- I might have missed this, but did
you talk about any potential for capacity cuts as a result of this?
Anderson: We did not, Bill. As you know, both airlines independently are taking
pretty aggressive steps to downsize the domestic capacity of our respective
businesses. The cuts that have already been announced will be implemented later
Delta side, that will result in our domestic capacity in the back half of this
year being down a full 10% on a year-over-year basis and Northwest has, I think,
a 5% domestic capacity cut on a year-over-year basis as well. So we feel like we
have pruned the domestic system for each respective carrier. Certainly as we go
forward, we will look at the economic volatility, fuel prices, economic growth
and make further decisions on domestic capacity, but we don't see this
transaction in and of itself reducing capacity.
Greene: Okay and then as you looked at this and other opportunities for Delta, I
guess it is fair to assume that this one potentially offered you in your view
sort of the most synergy, just got this $1 billion number, but I am not sure how
to reconcile that with what we heard back in '06 about the $1.5 billion or $1.6
billion, I forget the exact number, from a US Airways-Delta combination. Can you
help me reconcile that at all?
Anderson: I can't. You might want to ask Doug Parker.
Greene: Okay. So you basically -- you don't believe that $1.6 billion, I
Anderson: We never believed that, no.
Greene: Okay. And then lastly, is there a breakup fee to either carrier if the
transaction doesn't go forward?
Bastian: Yes, there is the standard breakup fee if it occurs in the context of a
breach. If the transaction doesn't go forward simply because of regulatory
approval and litigation that might result from that, then there is
Greene: Okay. And the last question is does this deal cause or does it force
Continental to leave SkyTeam or from your perspective, is it fine for them to
Steenland: This is Doug. We would welcome Continental to stay in. We have had a
-- Northwest and Delta, as well as Air France and KLM have had a very strong and
beneficial relationship with Continental. They have been a very constructive
partner and they are a great airline. They provide really good customer service.
They've got a solid management team. If at the end of the day Continental
decides that it wishes to remain standalone, they will always be welcome to stay
in SkyTeam and to participate in other benefits on the cost-sharing side that
Greene: Just lastly, did any of your customers react, your corporate customers,
Greene: Okay. Thanks for your help.
Jamie Baker, JPMorgan.
Baker: Good morning, everybody. It is actually Jamie and Mark Streeter. First
question is fairly basic. How do you define a hub? Is there a minimal level of
operations or spokes that have to emanate for a city to be quantified as a
Anderson: Generally, it is a place where more traffic is connecting than not
connecting and generally, that level is somewhere around 150 departures a day or
Baker: Okay. Second, on the regulatory process, what percentage of your city
pairs currently do you already have over a 50% share and as I follow-on to that,
Doug, it sounds like you didn't quite finish your answer to Bill's question,
which party bears the antitrust breakup fee risk?
Steenland: There isn't an antitrust breakup fee risk.
Steenland: I don't have that number right off -- right at our fingertips, but I
think the most relevant number is that, of the collective 1000 city pairs that
the two airlines serve, we overlap on only 12 and of those 12 routes, eight of
them have two or more competitors and we are only talking four routes that fall
below that and they have, in the aggregate, 500 passengers a day. And we are
talking absolutely minimal competitive overlap and for that reason, we believe
and are confident in being able to pass muster through the DOJ
Baker: Okay. And lastly for me, how do you suggest that we frame the objections
that have recently come from both the Northwest pilot group and from -- and the
Bastian: Well, I think if you think about the Northwest pilot group, I think the
right way to frame it is that -- think of all the airline mergers in the past
and if we had followed that traditional approach, there would have been no
discussions, no conversations, no interactions with the two pilot groups prior
to announcement and we basically would be starting from scratch to engage
pilot groups' request, there was substantial engagement to try to get a combined
collective bargaining agreement and a merged seniority list prior to
announcement. Substantial progress was made on both fronts, but notwithstanding
everybody's best efforts, the finish line wasn't crossed and agreement was
reached with the Delta pilot group and there will be continuous sort of best
efforts to try to get to that single agreement and to get to a combined
seniority list prior to closing. That is going to be six to eight months away.
There is a substantial amount of time to allow the parties to do that and if
that turns out to be the case, that will be a milestone event that no other
airline merger will have even come close to accomplishing.
Streeter: Gentlemen, hi, it's Mark Streeter. Just a quick question from me on
the credit side in terms of the capital structure. Earlier this year when oil
was 35% lower, jet fuel, Air France publicly came out and said they were willing
to make that investment of $750 million to $1 billion and now we sit with the
oil strip at $113 and jet fuel a dollar higher than earlier this year. What sort
of changed in terms of the thinking and the rationale in not taking that
additional liquidity if it is available?
Bastian: Mark, this is Ed. That is essentially a capital raising opportunity
that they provided. It wasn't a -- it wasn't -- it wasn't debt, it wasn't a note
per se; it is a capital raise opportunity. We are confident that this combined
airline over the course of the next 12 to 18 months will have similar capital
raise opportunities, either still within Air France-KLM or other places within
the market. We have got -- I think we will have a tremendous amount of investor
interest in this combined deal and we thought this point in time was not the
right time to raise capital.
Streeter: And Ed, are you saying -- just as a follow-up to that then -- that you
do need more equity capital, that the balance sheet is not where you want it to
be long term?
Bastian: I did not say that, Mark. We said and we made a strong point about one
of the reasons we are doing this is we are building a durable financial
foundation. We are going to have a liquidity position of roughly $7 billion of
the combined entity. This is about 20% of the combined entity's revenues. We
feel confident that our cash and financial position upon closing will be the
strongest clearly amongst any of the network carriers that will rival almost any
carrier on the planet.
Anderson: And I would refer you back to the slides that showed the
debt-to-equity ratio and the EBITDAR coverage slide that show how strong the
balance sheet is.
Streeter: I agree with you that you are stronger than your peers, but I am
wondering if it is at the optimal level -- the optimal level for where you think
it should be over the long term.
Bastian: Well, what I said, over the long term, we will have opportunities to
evaluate that and calibrate and if we decide to raise capital in the future, I
am sure there will be opportunities.
Streeter: Thank you.
Chris Cuomo, Goldman Sachs.
Cuomo: Good morning, everyone. I just had a follow-up with respect to antitrust.
You have obviously expressed confidence regarding antitrust approval of the
transaction. What are your thoughts if in fact we were to see another
transaction? Obviously CAL/United has been rumored. How does your thinking --
does your thinking at all change? How does your -- how would you perceive the
antitrust approval in light of the potential for another series of -- or perhaps
an additional transaction?
Steenland: Our view wouldn't change. One, the airline industry, after this
transaction and even if there is a follow-on transaction, remains remarkably
fragmented and there will be no carrier with truly a dominant position.
Southwest will remain if not the leading and biggest domestic airline, pretty
close to it. And the analysis of the Justice Department, they look at city pair
combinations and we gave you the city pair analysis that a Northwest-Delta
transaction presents domestically and that analysis wouldn't change if there was
another transaction pending.
Cuomo: But does the DOJ -- do you think they will look at the transactions
though in aggregate sort of at the same time or do they view them
Steenland: I don't think you can say now. It probably would depend on timing,
but at the end of the day, they would look at each transaction on its own merits
and for the specific competitive issues if any that it would present and for
that reason, we don't think this transaction presents any material ones and we
are confident and hopeful that we will be able to get through the process
Cuomo: Okay. And then just on the synergies, particularly on the network side,
is the lack of a seniority agreement between Delta and Northwest in any way an
obstacle to realizing a portion of those synergies? Is there a potential upside
to that number if in fact a seniority agreement was reached sooner rather than
later? How should we be thinking about that?
Bastian: The synergies -- the revenue synergies that I quoted, Chris, assume the
full integration of the airline with the cooperation of pilots from both
companies. We also expect that number to be in the 2012 timeframe in terms of
when everything would be pulled off, so we clearly have time to negotiate a
combined collective agreement. In the near term, we have the ability with the
new contract extension or tentative agreement with the Delta pilots to realize
the bulk of those network synergies within the existing pilot framework
agreement. So no, we are not taking a significant haircut at the present
Cuomo: Okay, then just lastly on the one-time costs, what's sort of the timing
of that, the cadence? How should we be thinking about that? Is it obviously
Bastian: Largely over a two-year period.
Cuomo: Over a two-year period. Okay. Well, thank you very much.
Anderson: Bring those in significantly under that $1 billion. We are giving you
the outside number.
Cuomo: I'm sorry. Could you repeat that?
Anderson: Our plan is to beat that number. I mean we have just given you the
outside number for your assumption purposes, but our intention is to do a lot
better than the number we have put in the slide deck.
Cuomo: And you sound confident that you can do that? Would that be a correct
Cuomo: Great. Thank you.
Raymond Neidl, Calyon Securities.
Neidl: Okay, congratulations. You have got a big challenge ahead of you.
Previous airline mergers have all proved to be kind of a disaster in the first
year or two with the one exception of Delta under old management when they
acquired Western Airlines. So I guess a general question is what made you
finally decide to do this merger instead of do a -- just keep the partnership
going the way it was or possibly doing a merger, but keeping the two airlines
separate like Air France and KLM did and then number two, is this merger going
to really complicate your fleet type, making the merger process even more
Anderson: I will take a shot and then I will give it to Doug. I mean, first of
all, Ray, not all mergers are created equal. This is actually -- if you look
back over history, you are taking two very strong carriers that have solid
strategies, great balance sheets, best-in-class cost structure and have already
progressed down the road of integration.
about it. We already have a domestic codesharing operation where our scheduling
and pricing systems are hooked up. We have a reciprocal frequent flyer program
and we are already members of the same SkyTeam alliance. So we are already well
down the road.
unlike a lot of the mergers you are talking about, those mergers at different
points in time since deregulation and even before involved carriers, one or the
other of which or both were in distress, and in this case, you have two carriers
that just came off of record performance in 2007. So we are in a strong position
respect to the fleet, the fleet issues are a little bit of a misnomer actually.
The fleet integration actually works quite well because we don't have common
fleet types, except for the 757-200. So the 747, when you go get a single
operation specification, we don't have to sit down and merge a lot of
maintenance programs, number one.
two, at the kind of scale we're talking about, 800 mainline airplanes and 600
regional jets is a fleet of about 1460 airplanes, you have scale in all of those
fleets and that is what is key. The key to keeping your operating costs down in
a given fleet is scale and what that diversity of fleet gives you is the ability
to match the right airplane to the right market where ever you are around the
world. So there is actually a lot of benefits, in the steady state, come from
re-fleeting and putting the exact right economic piece of equipment on a given
city pair route.
Steenland: Just to supplement that a little bit, we, and I am confident Delta
has, over the last four or five years, we have probably -- I think at Northwest
we've probably spent $50 million or $60 million already in terms of airport
relocations, in terms of hooking up our pricing systems, hooking up our yield
management systems, hooking up our frequent flyer programs, doing all the things
that you need to do if you are going to provide seamless alliance service. So we
are well ahead of that game.
think it also -- by having this merger take place within an existing alliance
relationship, it really gives us a very big head start on what has historically
been gnarly integration issues, not just between the two merged carriers, but
also between our existing alliance partners. I think if there was a merger
transaction that took place where you were switching global alliances, I think
that is one that you would really have to ask a question about and it clearly
complicates the doability of the transaction.
Neidl: I know there are benefits to trying to get this integration together as
quickly as possible, but labor is always a major problem as we are seeing in
this case. Would it be worthwhile maybe to keep the two airlines operating
separately under one umbrella similar to KLM and Air France?
Anderson: We do not intend to do that, Ray, absolutely not.
Neidl: Okay, great. Switching to the smaller aircraft, Richard, I think you
talked a little bit about before, you are going to have partnerships with almost
every regional airline out there, plus you're going to own a number of regional
airlines. Is there any thought to maybe consolidating that and making that a
little bit more streamlined?
Anderson: I think the consolidation with our regional jets, both wholly-owned
carriers, as well as our contracts, is a big opportunity for the combined
airline and yes, we expect there to be a significant -- some shuffling of the
deck, as well as some cost value out of realigning our portfolio.
Bastian: Right. And there is two other points there. The great piece here is,
between Compass and Mesaba, you have the very best operators and cost structure.
So our goal with our contract carriers is to bring their margins down over time
to more accurately reflect the overall margins in the industry and Compass and
Mesaba will give us that ability to shift line from contract carriers to owned
carriers at much better CASM.
Steenland: What hasn't -- it is a work in process, so it hasn't gotten that much
attention, but between Compass and Mesaba, there exists a holding company and
they are actually already between those two carriers sharing functions and we
would expect that that would continue and would expand as time goes
Neidl: Okay, great. And then finally, I don't know if you mentioned this or not,
is there protections there from preventing a third party coming in to try and
make a bid for one of the other carriers or for some of the assets?
Bastian: The merger agreement basically positions the two Boards where they are
going to meet their fiduciary duties and their fiduciary obligations if anyone
would elect to do that and we will just have to see what happens.
Neidl: Great. Good luck and congratulations.
Daniel McKenzie, Credit Suisse.
McKenzie: Good morning, thanks. One very simple clarification here. The new
contract with the Delta pilots is ultimately the new contract that the Northwest
labor groups will migrate to or is there yet a new contract that would need to
Anderson: There is a new contract to be negotiated with the Northwest pilots and
coming to a combined collective bargaining agreement together with the Delta
pilots. So we have a standalone Delta pilot contract that now will run, if
ratified, through 2012.
McKenzie: Got it. And at this point, do the Northwest pilots have the option to
sue to open the arbitration clause if that is the case?
Steenland: I didn't quite understand the question.
McKenzie: Yes, sure. So there was arbitration that the Northwest and Delta
pilots were essentially working towards with respect to the seniority and is
that a shut conversation at this point or do the pilots have the ability to sue
to go back and to continue those discussions.
Steenland: Each pilot contract contains very specific provisions and protections
that govern this situation and ALPA, which both the Delta pilots and the
Northwest pilots are members of, has a very specific merger policy that the
collective bargaining agreement of both airlines obligates both the airlines and
the pilot groups to follow and if the two pilot groups cannot, on a voluntary
basis, get there, there is a very clear roadmap and there is very clear
precedent as to how this arbitration process would work to integrate the
McKenzie: Okay, got it. Thanks. And then just one last clarification here. I am
hoping you can clarify if and how the synergy estimates that you guys have
announced factors in the effect of other deals that are likely to be announced
Anderson: As we develop, obviously that would impact the revenue -- the network
synergies. We have given a little bit of thought to that, but that is kind of
hard to anticipate. You need a crystal ball.
McKenzie: Sure, I understand.
Anderson: But that said, we feel quite confident in any consolidating
environment or if this is the only deal done, we can generate these
McKenzie: I understand. Okay. One final question here. Ed, I think you mentioned
that you still plan to execute on some capacity reductions that you have
announced, but I also understood you to say that you're also planning growth at
hubs. And I guess I would interpret that to mean Cincinnati and Salt Lake City.
I guess just, first, I'd like to clarify if I am correct on that and perhaps
some perspective on the timing of future hubs?
Bastian: I think you are mixing apples and oranges there. We are reducing
service across the domestic Delta network. As I said, we are going to be down a
full 10% year-over-year by the end of this calendar year. If the -- if fuel and
economic conditions warrant going forward, we will continue to right-size the
domestic network. What we said on growth is that we will only grow if it is
profitable growth. The majority of the growth we are seeing in this combined
entity is going to be on the international side of the business, but it
certainly makes the hub traffic potentially more interesting for us as we
generate some greater international opportunities out of the hubs and the feed
into the hubs become more.
McKenzie: Okay, great. Thanks a lot for that clarification. I appreciate
Kevin Crissey, UBS.
Crissey: Good morning, everybody. Doug, did you look at just selling the golden
share because when I look at it, I see $200 million in combined synergies in
2009, $600 million in 2010. The golden share had to be worth something that you
could have been able to sell to come up with something similar to that number
without the risk of integration.
Steenland: We looked at all of the options available to us -- standalone, sell
the golden share, merge with other carriers -- and we clearly and unambiguously
came to the conclusion that this was the transaction that was in the best
interest for all of the Northwest constituents.
Crissey: Okay. Is there any chance that we will see a frequent flyer spinoff in
the 2009, 2010 type timeframe?
Bastian: We're not -- we are going to have our work cut out for us just putting
these two airlines together. That will be a question we look at in the
Crissey: We are hoping that you're understating your capacity cuts and going
forward so good luck to you. Thank you.
This concludes the presentation. Thank you all for joining. You may all now
disconnect. Good day.