Delta says fuel costs forced combination with Northwest

Airline industry faces 'break point'

Delta Air Lines Inc. said its fuel costs surged to 43 cents for every dollar of revenue, from 17 cents five years ago. (Justin Sullivan/Getty Images)

ATLANTA - US airlines may be approaching a "break point" on fuel costs, making the merger between Delta Air Lines Inc. and Northwest Airlines Corp. necessary, Delta president Ed Bastian told Minnesota legislators.

Delta, which last month agreed to buy Eagan, Minn.-based Northwest to form the world's largest carrier, has seen its fuel costs surge to 43 cents for every dollar of revenue, from 17 cents five years ago, Bastian said.

The pressures that pushed Delta and Northwest to consider a combination have only intensified as fuel costs hold near a record and the economy slows. At least four carriers have filed for bankruptcy since March 31, partly blaming jet-fuel costs that jumped 74 percent in the past year.

"If we were left as standalone carriers, we may already be approaching that break point," Bastian said yesterday at a hearing of the Minnesota House of Representatives Commerce and Labor Committee. "It may be here. You're seeing that in the industry, as carriers are falling almost on a weekly basis. And this time, they're going into liquidation. They're not coming back."

The committee is examining the impact of the proposed merger on Minnesota commerce and jobs.

Frontier Airlines Holdings Inc., Aloha Airgroup Inc., ATA Airlines Inc., and Skybus Airlines Inc. have all filed for bankruptcy since March 31.

Delta and Northwest both filed for bankruptcy on Sept. 14, 2005, and exited court protection last year.

The combined carrier will have about $7 billion in cash when the merger is complete, the companies have said.

"We decided together with the Northwest management that we wanted to move while both companies were fairly strong," Bastian said. "That's why we're moving now rather than waiting on fuel to continue to erode our ability to manage together."

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