A Delta aircraft touches down at Sangster International on June 9, 2007 on its inaugural flight to Montego Bay. Delta and Northwest Airlines have agreed to merge to create the world's largest carrier but must first hurdle union and shareholder approvals, and anti-trust regulators. - File

Delta AirLines Inc and Northwest Airlines Corp have agreed to merge to create the world's biggest carrier, but they must now convince antitrust regulators and labour unions to move forward.

Two of Northwest's largest unions immediately declared their opposition.

Most importantly, the airlines will need antitrust approval from United States regulators.

In 2001, an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns.

Executives at Delta and Northwest said they were aiming to close their deal by the end of this year, but before the end of the merger-friendly Bush administration.

Top carrier

If successful, the merged company will eclipse American Airlines as top carrier.

Northwest and Delta overlap relatively little in the US, which could help them gain antitrust approval.

Delta's routes are strongest in the eastern United States and to Latin America, including and Europe.

Northwest would complement that with its near-lock in the Midwest along with flights to its Tokyo hub and other points in Asia.

The two carriers fly into Jamaica.

The takeover announced on Monday calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Delta CEO Richard Anderson.

If the share-swap becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 per cent premium over Monday's closing stock prices.

Based on those prices, the deal values Northwest at more than US$3.6 billion.

On Tuesday morning, however, the airlines stocks fell after rising on premarket dealings.

Shares down

Northwest shares were down 59 cents, or 5.3 per cent, to US$10.63 in morning trading, while Delta shares lost 98 cents, or 9.4 per cent, to US$9.50.

"We are confident the transaction will go forward and be approved," Northwest CEO Doug Steenland said.

Years of mounting losses forced Delta and Northwest to file for bankruptcy protection in 2005 and they both emerged from bankruptcy as leaner carriers last spring, after shedding billions in costs.

Both are losing money again but are in much better shape than the four much-smaller airlines that have filed for bankruptcy or gone out of business in recent weeks.

The joined Delta and Northwest would have combined annual revenue of US$31.7 billion, vaulting it ahead of Fort Worth, Texas-based AMR Corp's American Airlines for the top spot in the United States.

The combined carrier would be the biggest in the world in terms of traffic, before any capacity cuts and divestitures that might be required by antitrust regulators.

Wall Street and some airline executives have pushed for consolidation for years, arguing that too many seats are chasing too few passengers.

Discounting

The resulting discounting has made it hard for airlines to cover their expenses.

As for the unions, Delta and Northwest tried something novel - They tried to get their pilots to agree on a joint contract and seniority beforehand. They failed to get an accord on seniority, though.

Delta made a deal with its pilots over the weekend, leaving the Northwest pilots to work out something later. On Monday, Northwest pilots declared their opposition to the combination "as it stands", perhaps leaving room for a deal later.

The Delta pilot agreement, which still needs rank-and-file ratification, extends its existing collective bargaining agreement through 2012 and gives Delta pilots 3.5 per cent of the new company.

That was good for Delta. But Northwest pilots concluded it was an arrangement to "try to disadvantage the Northwest pilots economically and with respect to our seniority", Northwest pilot chairman Dave Stevens wrote in a memo late Monday.

Shareholders at both carriers must approve the deal.

The transaction calls for Northwest shareholders to get 1.25 Delta shares for each Northwest share.

Northwest value

That values Northwest at almost $3.63 billion, based on 277 million Northwest shares that the companies said are outstanding, although the final value will shift with the share prices until the day the deal closes.

Analysts believe a Delta-Northwest combination will stand up better to regulatory scrutiny because the two carriers have less overlap.

Northwest's Asian routes have been one of its main appeals to other carriers. It and United are the only two US carriers with the rights to pick up new passengers in Japan and fly them farther into Asia.

Delta and Northwest also complement each other internationally because they are both part of a marketing alliance that includes Air France-KLM.

Air France-KLM had said previously it would consider making an investment in the combined company, but that did not play out.