The Wrap - The Delta Factor

Richard Warner

May 1, 2008

What's the most important company to the state of Georgia? Talking with two of the state's top economists, Rajeev Dhawan at Georgia State and Mercer's Roger Tutterow, the answer is pretty clear.

Delta Air Lines.

A rash of mergers in recent years have eliminated a number of hometown headquarters: BellSouth, Scientific-Atlanta, ChoicePoint, Georgia-Pacific. Those losses were blows to our civic ego, for sure.

But if Delta were acquired, the loss to the state would be enormous.

Forget "mergers." When businesses combine, one company always comes out on top. There's always a big risk to both companies. Most mergers fail because little time and energy is spent getting the corporate cultures to meld. That's one reason the stock of the acquiring company rises and the stock of the company being acquired drops.

Merging airline cultures is more fiendishly difficult than most because of the egos and unions involved. But the stakes in an airline merger greatly transcend the deal. A region's growth can rest on the outcome. That's why politicians and employees in a city threatened with the loss of an airline scurry about for the government's help in killing the deal.

As you would expect, Minneapolis is up in arms over the threat of losing Northwest, just as Milwaukee fears the loss of its beloved Midwest Airlines.

It's not because they're necessarily passionate about the financial health of the airline. The issue isn't Delta's stock price or whether its flight attendants unionize. As investment expert Gene Henssler points out, the airline industry collectively has never turned a profit.

What matters in Delta's case is the importance of transportation to Atlanta.

Delta, the state's biggest employer, commands a 70-plus percent market share out of Hartsfield-Jackson. Delta also is a major contributor to Atlanta non-profits, often providing free air travel. Above all, the carrier's strategy of expanding internationally instead of focusing on the competitive domestic market will pay off for Georgia – if local business and civic leaders will take full advantage of it.

Yes, AirTran keeps Delta honest and any merger that reduces Delta's presence in Atlanta would help AirTran's cause. But if Delta was gobbled up by American or another competitor and was to vacate its Atlanta headquarters, the impact would be far more significant than the loss of any local technology company.

Delta went through the '80s and '90s using up the goodwill it once generated. The company paid dearly in bankruptcy for management missteps and the boldness of its unions. But this is one case where Atlanta has a deep investment in one company's future.

Something is going to happen. With high fuel prices, rising labor costs and the opening of international routes, the pace of airline mergers no doubt will increase over the next few years. Some cities are going to win.

The best Georgia can hope for is that Delta is the one doing the buying.

Richard Warner hosts "Georgia's Business" on GPTV and is CEO of What's Up Interactive.