Delta Air Lines and Northwest Airlines late yesterday announced a merger agreement to create a mega-airline that would be the world's largest absent divestitures with aggregate annual revenue of more than $35 billion, a fleet of more than 800 aircraft and 75,000 employees worldwide. Following months of speculation, the carriers unveiled a proposed combination in which DL essentially would acquire NWA in a stock-swap transaction. NWA shareholders would receive 1.25 shares in the new carrier for each current NWA share, a 16.8% premium based on current prices. The new airline, to retain the Delta name and be based in Atlanta, will have an enterprise value of $17.7 billion, according to the companies. DL CEO Richard Anderson would be CEO of the combined entity. "The transaction is expected to generate more than $1 billion in annual revenue and cost synergies from more effective aircraft utilization, a more comprehensive and diversified route system and cost synergies from reduced overhead and improved operational efficiency," the airlines said in a statement. "The company expects to incur one-time cash costs to not exceed $1 billion to integrate the two airlines." The merged carrier is expected to have liquidity of nearly $7 billion at closing. The merger must be approved by both companies' shareholders and gain required regulatory approvals, including antitrust clearance from the US Dept. of Justice. "It is expected that the regulatory review period will be completed later this year," the carriers said. DL Chairman Daniel Carp would become chairman of a new board of directors that would total 13 members comprising seven current DL directors, five NWA directors and one representative from the Air Line Pilots Assn. NWA Chairman Roy Bostock would become vice chairman and current NWA CEO Doug Steenland would be a member. DL President and CFO Ed Bastian would have the same roles with the new Delta. The new airline and its regional partners would have a network of 390 destinations in 67 countries. "We're announcing a transaction that is about addition, not subtraction, and combines end-to-end networks that open a world of opportunities for our customers and employees," Anderson said. Steenland added that the "new carrier will offer superior route diversity across the US, Latin America, Europe and Asia and will be better able to overcome the industry's boom-and-bust cycles. The airline will also be better able to match the right planes with the right routes." The new Delta plans "no hub closures" and will feature "improved international access to benefit small communities," the carriers said, adding that consolidation is necessary because "record fuel prices have fundamentally changed the economics of the airline industry." Fuel costs have "significantly [eroded] the financial benefits of restructuring" gained during both carriers' Chapter 11 processes that ended last year. A key to the accord is a tentative agreement reached yesterday with DL's pilots to extend their existing collective bargaining agreement through 2012. DL pilots, represented by ALPA, would gain a 3.5% equity stake in the new company if the agreement is ratified. DL said it will "use its best efforts to reach a combined Delta-Northwest pilot agreement, including resolution of pilot seniority integration, prior to the closing of the merger." US-based nonpilot employees of both companies additionally would be provided a 4% equity stake in the new airline upon closing. No "involuntary furloughs" of frontline workers are anticipated, according to the airlines, which promise to keep current pension plans intact. The merger agreement is likely to spark negotiations between Continental Airlines and United Airlines regarding a potential tie-up. NWA's "golden share" in CO, which allows it to block its rival from entering into a merger, now can be bought back by CO for $100. UA repeatedly has voiced its support for industry consolidation. by Aaron Karp