Governor Jesse Ventura says he's concerned about the impact of a sale of Northwest Airlines on Minnesota's economy and the company's employees. The governor has taken a low profile on the issue, but he issued a statement saying it appears American Airlines' bid to take over Northwest is no longer speculation. The Washington Post reported that American has made a $3.7 billion offer to buy Northwest, but that both sides remain far apart on the question of a price.
THE GOVERNOR SAYS Northwest Airlines has long been a vital component of the state's economy, and he wants to ensure a continued relationship that is in the best interest of everyone involved.
"Northwest is a partner that Minnesota needs and wants to keep, And it's my job and our job to ensure we give the best climate we can to their success here in Minnesota," Ventura said. "But it's still a private business decision."
FOR MORE INFORMATION Ernest Arvai, an airline analyst with the Arvai Group, discusses the reports of a merger between American and Northwest Airlines.
The governor says the outcome is also in the hands of federal regulators. But Ventura says he will contact Northwest executives in an effort to represent the interests of Minnesota's citizens. A Northwest official declined to comment on the statement.
Meanwhile, a powerful legislative commission will also take up the issue of a possible Northwest-American deal in a meeting scheduled for July 26th.
The governor's comments come in the wake of a Washington Post report that American has had an offer of $44 a share on the table for several weeks. Both airlines declined to comment. Forty-four dollars is considerably less than one Wall Street estimate valuing Northwest at $55 a share. And it's far less than what the paper reported as Northwest's initial asking price of more than $100 a share. That would total more than $8 billion. The paper says American negotiators were re-evaluating their offer after Northwest officials made their case for how they value the airline.
Darryl Jenkins, executive director of The Aviation Institute at George Washington University, predicts the two sides will eventually agree on a price.
"Everything that's going on right now is posturing and positioning, where American Airlines is trying to get the deal for the least amount of money, and Northwest Airlines is trying to get the most amount of money," he said.
Analysts also characterized American as very interested in reaching an agreement to buy Northwest. The two companies first started talking within days of United Airlines' May announcement it had reached a deal to buy US Airways. Many industry experts say that combination would put number-two American at a significant competitive disadvantage to United, already the world's largest airline.
Ray Neidl, an airline industry stock analyst at ING Barings, agrees the two sides can reach a deal, though it may be a ways off. "There's a good chance they will agree on terms," says Neidl. "I think it's very important to American. On the other hand, Northwest, unless they get their price, may not be that anxious to sell. They've got their partnership with Continental, they've got their partnership with KLM, and they're quite happy going the alliance route. I think it's American that would have to do the push if an agreement's going to be reached."
"Everything that's going on right now is posturing and positioning."
- Darryl Jenkins
George Washington University
Kim Troedsson a debt analyst with Dain Rauscher in Minneapolis calculates American would have to take on an additional $10 billion or so in debt and aircraft-lease payments. She says that could result in a lower credit rating for American and higher borrowing costs.
She says that's not American's primary concern.
"What's more important in American's mind right now is maintaining a competitive position to United-US Airways," Troedsson says.
But analysts disagree on whether Northwest is a good fit for American. Darryl Jenkins of George Washington University contends it is, and would likely receive clearance from federal anti-trust regulators. "Of all the mergers that are out there, American-Northwest is a very clean one," Jenkins asserts. "It has a very high chance just in and of itself of going through, and has some assets to it that American badly wants."
But other analysts contend an American takeover of Northwest faces high regulatory hurdles, and that American's overtures may be an effort to prod regulators into blocking a new round of industry consolidation. Skeptics also point to the difficulty of combining work forces at the two companies, both with histories of difficult labor relations.