Airlines should resist the temptation to merge with or acquire rivals during the industry's current crisis, since such deals tend to create more problems than they solve, analysts and experts say.
Delta Air Lines Inc. and Northwest Airlines Corp. each declared bankruptcy on the same day earlier this month, touching off speculation they could merge with each other or be acquired by other airlines.
A combination of Delta, the No. 3 U.S. airline, and Northwest, the No. 4, is one of several scenarios amid a shakeout that has made an already volatile and loss-ridden industry even more unpredictable.
While mergers may look tempting as a way to decrease a glut of available seats, airlines would be much better off going it alone, many observers say.
"I don't frankly see that airlines that are shaky to begin with are going to be helped any by taking on the very risky task of combining two airlines," said Michael E. Levine, a former senior airline executive, in a recent interview.
"Combining two airlines historically has almost always raised costs," said Levine, who was CEO at now defunct New York Air and an executive vice president at Continental Airlines and Northwest.
Past deals may have even helped spur bankruptcies at airlines like US Airways Group Inc. and the former Pan American World Airways.
"Mergers are a nightmare," said Doug Abbey, a consultant with the Velocity Group in Washington. "I'm sure everybody has thought about it but half of the reason that airlines like US Airways find themselves in this position is that previous mergers have not gone entirely well."
US Airways, the product of mergers between Allegheny Airlines, Piedmont Airlines and Pacific Southwest Airlines, is now set to be bought by a group of investors led by Phoenix-based America West Airlines Inc.
Complications
Many analysts remain cautious about the prospects of that deal. As part of the agreement, US Airways agreed to return 25 planes to GE Commercial Aviation Services, on top of 46 aircraft it had previously announced it planned to give back.
Diverse labor forces also tend to be a stumbling block in airline mergers, and would be particularly balky in any combination of Delta and Northwest since Northwest's workforce is almost entirely unionized, while only Delta's pilots are.
"Do you seriously think that Delta would endanger its system by doing a merger and having everyone unionized?," asked Julius Maldutis, an analyst with Aviation Dynamics .
Because of the complications that most mergers bring, most airlines would be better off looking at more limited alliances, Calyon analyst Ray Neidl said in a recent note.
But such partnerships involving joint planning, marketing and revenue sharing would require an antitrust exemption from Congress, Neidl said.
"The government has to rethink its anti-trust policy on airline mergers," Neidl said. "Otherwise, future liquidations are inevitable."
But many say that is just what the doctor ordered for an overcrowded industry.
The liquidation of three major carriers in the late 1980s and early 1990s -- Eastern Air Lines, Braniff International Airways and Pan American World Airways -- kicked off the last sustained period of profitability for the airline sector.
"Unlike in the early 1990s when three carriers were liquidated and set the stage for the survivors to become very profitable, the jury is still out on what's going to happen here," said Maldutis said.
