Feb 19, 2008 7:26 pm US/Central
Is Bigger Better? Some Say Delta/NWA Merger Isn't
(WCCO)
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Analysts have been touting savings in labor costs, predicting the Northwest headquarters and about 1,000 white collar jobs in Minnesota will be eliminated.
CBS
If Northwest and Delta combine, they will create the largest airline in the world, but is bigger really better? There are experts who say a Delta-Northwest merger isn't the right strategy.
Delta Airlines is going to need to buy a lot of paint because if the speculation is true, the Northwest Airlines aircraft will be sporting the Delta logo after the merger. And that's just one cost of combining the two carriers into one mega-airline.
"I don't really get it. To be quite honest I don't see why anybody is really advantaged by this," said Alfred Marcus, a professor at the University of Minnesota's Carlson School of Business. He predicts a merger will not create cost savings.
Analysts have been touting savings in labor costs, predicting the Northwest headquarters and about 1,000 white collar jobs in Minnesota will be eliminated. Marcus isn't impressed.
"It's probably true that you only need one chief counsel, you don't need two. But you may need a bigger staff of attorneys," he said.
The new carrier would save money by eliminating an extra CEO. According to analysts, the Northwest top dog will be out but his exit package is an expensive $19 million.
A recent report in the New York Times estimated that only half of all company mergers produce their desired cost savings.
"Bigness creates complexity that's not there previously," said Marcus.
Analyst Terry Trippler takes a different view, predicting the merger is needed to create a U.S. carrier that can compete with international mega-carriers. As for saving money, Trippler sees Northwest bringing its expertise to Delta.
"Northwest has the lowest costs in the industry, and that's why I believe a merger between Northwest and Delta, you've got to bring those people who have figured out how to get the lowest costs in the industry on board," said Trippler
Trippler sees a successful merged airline, headquartered in Atlanta with Minneapolis as a major hub. Marcus predicts it will create an over-sized company with clumsy customer service.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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