Here's the article in the Atlanta Journal-Constitution regarding AA/DL's exploratory talks.
The following is reprinted from the Thurs, June 8 edition of the ATL Journal-Constitution:
Delta, American in dating game
Scott Thurston - Staff
Thursday, June 8, 2000
Airline merger speculation is beginning to take on Shakespearean overtones: Who's wooing whom, and why?
Atlanta-based Delta Air Lines and American Airlines have opened exploratory discussions that include the idea of a marriage. But it's unclear whether the talks, which came to light Wednesday, are really aimed at a deal or intended more for dramatic effect.
The discussions follow a May 23 announcement by United Airlines that it will buy US Airways. That touched off a wave of speculation that the industry is on the brink of a major consolidation.
A combination of American and Delta, the No. 2 and No. 3 carriers behind United, would be a blockbuster. Yet the merger has been considered unlikely because of the airlines' size and their route overlap.
Both Delta and American have connecting hubs in Dallas and a major presence in the Northeast. Together they would control 35 percent of the U.S. market, swamping even the 27 percent share of a combined United-US Airways.
The talks between American and Delta --- and media leaks describing them --- could be a maneuver to torpedo the United-US Airways deal, which already faces tough antitrust scrutiny and opposition by consumer groups.
In essence, American-Delta talks tell U.S. Justice Department regulators that if they let the first deal fly, an even bigger pairing could follow.
"Such a transaction, and for that matter even the specter of it, would add fuel to the regulatory concern," said PaineWebber airline analyst Sam Buttrick, who at the same time termed a Delta-American merger "exceptionally unlikely."
He wryly suggested that the move could backfire on American and Delta because a merger between them "could have the unintended effect of making a United-US Airways deal look good by comparison."
Another motive for American might be to pressure Northwest Airlines, which it approached last week about a possible buyout. By talking to Delta, American would be signaling Northwest it isn't the only belle at the ball.
And there's a third, less complex possibility: If the United-US Airways deal is approved in some form, American and Delta would want to have the most powerful countermove ready; it makes sense for the two to at least talk.
American and Delta executives, plus their bankers and lawyers, met Monday in New York. American initiated the meeting, first reported in Wednesday's Wall Street Journal.
The discussion was broad and theoretical. No prospective pricetag or structure for a merger hit the table. It wasn't even clear which airline would be the surviving entity. American is larger in terms of annual revenue passenger miles but Delta's current market capitalization of $6.23 billion is about $2 billion higher than American's.
Delta's top executive at the meeting was Chief Financial Officer Ed West. Chairman and CEO Leo Mullin has been out of the country, on vacation and business, since just before the United-US Airways deal erupted.
Delta spokesman John Kennedy wouldn't confirm the talks. "This is media frenzy, not company frenzy," he said. "We're calm."
Delta, Atlanta's largest corporate employer, did issue an internal statement for use by managers in answering workers' questions. It concluded:
"The airline industry is very dynamic and is in a period of real change now, and it is not clear what --- if anything --- may happen in the future. However, it's important to remember that Delta management is carefully monitoring the industry competitive situation and that the company will take all appropriate actions to protect the interests of Delta and its people."
Airline analysts continue to believe the most realistic responses to the United-US Airways deal --- if it survives regulatory and labor hurdles --- are an American buyout of No. 4 Northwest and a Delta buyout of No. 5 Continental.
Complicating that scenario is the fact that Northwest owns a stake in Continental and could block any sale. But it would likely divest the stake as part of a merger with American, leaving Continental free to entertain a Delta offer.
That would condense the top six airlines into three of roughly equal market share. Advocates of that scenario say the airline industry is fragmented compared to other industries and a consolidation is overdue.
But such deals could take years to complete and will face many questions about the effect on service, fares and employees.
Several consumer groups already are aligning to oppose the United-US Airways deal, and Congress plans hearings on it.
''As a matter of public policy, we should say no mergers among the big six airlines for any reason, under any circumstance,'' said Ed Perkins, a passenger advocate and former editor of Consumer Reports Travel Letter.
United and US Airways crafted their deal to appease antitrust regulators, most notably with a pledge to spin off the combined carrier's operations at Washington's Reagan National Airport into a new minority-owned carrier called DC Air.
Yet many doubt that will suffice. The Justice Department, analysts note, already is trying to reverse Northwest's partial ownership of Continental, suggesting regulators would have to have a major change of heart to approve a merger between any two Big Six carriers.
On the other hand United can argue its buyout of US Airways differs from other prospective deals because it would salvage an ailing company of questionable long-term viability, while the other Big Six players are comparatively healthy.
Delta's interest in Continental was firmly established in 1998 when it tried unsuccessfully to buy the Houston-based carrier for about $3.1 billion. Delta and Continental have mostly complementary routes and are lightly unionized compared to other big airlines, making a merger easier in some respects.
Another Delta option would be a run at Northwest, or even United itself. But those deals would be more expensive and the carriers are heavily unionized.