If executives at rivals of
have any hope for a potential merger of the two airlines, it's that it would relieve the glut of capacity hobbling the industry.
Speaking Thursday at
Delta Air Lines'
annual shareholder meeting, CEO Gerald Grinstein said a union of the two carriers would be "effective" from "everyone's point of view" if it reduced capacity. On the other hand, if it resulted in "an expansion" of services, Delta would look less favorably on it.
Grinstein's comments echo those of Gerard Arpey, the CEO of American Airline's parent
. At AMR's shareholder meeting Wednesday, Arpey said those assessing the potential merger have to ask themselves how it would affect capacity.
Both America West and US Airways have acknowledged conducting merger talks, and
The Wall Street Journal
reported that a deal announcement could come as early as Thursday.
Industry executives and analysts have regularly pointed to domestic overcapacity as contributing to airlines' current woes. Although passenger traffic is strong, the glut of seats in the air has prevented individual carriers from raising fares enough to offset high fuel costs.
Weaker competitors have remained in operation longer than some observers had predicted, prolonging the capacity problem. US Airways and United Airlines' parent
have used bankruptcy to slash labor costs and shed costly traditional pension obligations. In other cases, like Delta's, partners have stepped in with financing in order to prevent a bankruptcy filing.
There is already speculation that a marriage of America West and US Airways will remove planes from U.S. airspace.
, which has a large aircraft leasing unit, is a key creditor for both carriers.
The Wall Street Journal
has reported GE wants to use the merger as an opportunity to pull about 60 planes and deploy them elsewhere. The aircraft lease market is strong right now, notably in Asia, where airlines are scrambling to keep up with rising passenger demand.
Separately at Delta's shareholder meeting, Grinstein stressed the company was working hard to execute its transformation plan in a difficult environment. He noted the airline was working to realize $1 billion more in annual savings by the end of 2006. But that is part of the $5 billion Delta has been targeting in the transformation plan.
Responding to an employee's question, Grinstein acknowledged Delta will have a tough time raising new debt financing, something the airline has repeatedly said. There is no "magic bullet" as Delta has "pretty well used up" its balance sheet and resources to borrow, Grinstein said. The company must demonstrate to the market that it has the capacity to earn and be an effective competitor, he said.
Grinstein also declined to comment on whether the company would sell its Comair or Atlantic Southeast regional subsidiaries, which analysts have identified as a potential source of cash. He said both carriers were valuable to Delta because they fed passengers into key hubs but added Delta doesn't have to own them to enjoy that benefit.
The airline has been fighting hard to keep out of bankruptcy protection. Late last year it persuaded pilots to accept $1 billion in annual concessions. It also has overhauled flight scheduling to improve efficiency and launched a bold fare simplification program aimed at winning back customers who had flocked to discount competitors.
But Delta has acknowledged its plans didn't take into account the skyward trajectory of oil prices this year and has suggested it could face a cash crunch. Last week,
Delta offered a crystal-clear warning, saying cash flows for the rest of the year won't meet all of its liquidity needs.