Delta Air Lines Inc. and its pilots have agreed on a tentative contract to clear the way for a merger with Northwest Airlines Corp. that would create the world's largest carrier, people familiar with the talks said.
The accord would raise pilots' pay and give them an equity stake in the combined airline, which would keep Delta's name and Atlanta headquarters, said the people, who didn't want to be identified because the plan is still private.
The proposed merger with Northwest may be announced next week, the people said Thursday.
"With oil at $110 per barrel and the weakening economy, Delta probably got to the point where they felt like they needed to move ahead," said Michael Derchin, an analyst with FTN Midwest Research Securities Corp. in New York. "It always made strategic, long-term sense for these companies."
The airlines had been prepared to announce a combination in mid-February, people familiar with the talks have said. Those plans were postponed because the carriers' pilots, represented by the Air Line Pilots Association, weren't able to agree on a way to protect members' seniority rankings after a merger.
To work around the impasse, Delta is drawing up a new contract with just its 7,000 pilots, said the people. Northwest's 5,000 pilots would be asked to join under a single contract later.
Delta spokeswoman Betsy Talton declined to comment, other than to reiterate that the company's board committee to assess mergers remains active. Tammy Lee, a spokeswoman for Northwest, declined to comment.
The tentative contract hasn't been discussed among the rank-and-file pilots. It was likely negotiated by the executive committee of the Delta Air Line Pilots Association, Salt Lake City-based Delta pilot Mike Dunn said.
"I haven't heard the details," Dunn said. "In fact, I'm supposed to go to Atlanta next week to get the details of this particular deal."
Dunn volunteers for the Air Line Pilots Association in a program called "Pilot to Pilot," in which he communicates to other pilots activities of the union.
The last contract between the company and the pilots was negotiated in 2005, when Delta was in bankruptcy proceedings.
Dunn remembers accepting a steep pay cut and losing his pension and sick leave.
That contract expires in December 2009, Dunn said.
"What kind of bad will will there be between Delta pilots and Northwest pilots if we sign a deal that excludes them?" Dunn said about Northwest pilots. "Furthermore, what are the specifics that we agreed to?"
Negotiations to create a combined seniority list may take months to complete, according to the people familiar with the talks.
The merger includes a small premium for Northwest investors, three of the people said. Delta Chief Executive Officer Richard Anderson will run the combined carrier, and Northwest CEO Doug Steenland will likely be a board member, the people said.
Delta, the third-largest U.S. carrier by traffic, is betting that combining with No. 5 Northwest, based in Eagan, Minn., will boost revenue and lower costs after jet-fuel prices surged 78 percent in the past year. The merged company would surpass AMR Corp.'s American Airlines as the world's biggest carrier.