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Dear Mr. Berko:

H.S., Minneapolis

Dear H.S.:

When you cross a donkey with a burro, no matter how you slice the dice, you still get an ass. The merger between Delta Air Lines Inc. (DAL-$7.15) and Northwest Airlines Corp. (NWA-$8.09), a merger between two failures, just creates a bigger ass.

Delta and Northwest are two huge losers that were forced into bankruptcy a couple of years ago because the idiots who manage them don’t know bupkis about running an airline in today’s competitive environment. Slapping these losers together like two hunks of Silly Putty will just exacerbate their troubles.

The problem is that DAL’s Richard Anderson and NWA’s Douglas Steenland are old-school analog thinkers who can’t compete in a new-school digital universe. The airline industry ought to take flying lessons from Richard Branson’s Virgin Atlantic Airways and Herb Kelleher’s Southwest Airlines. Branson and Kelleher really understand how to make an airline fly and have continued to produce profits, year after year after year, in the face of increasing fuel costs, higher labor costs and burgeoning competition.

A merger between NWA and DAL will put 935 planes under one hangar that serve 650 cities in 110 countries. Now consider this. DAL reported a $6.4 billion first-quarter loss on revenues of $4.8 billion and NWA reported $4.2 billion first-quarter loss on revenues of $3.2 billion. Cheese and crackers! One might think that Congress was managing those two turkeys.

Their resurrection plans include laying off between 1,000 and 1,300 employees at the combined airline headquarters plus sweet bonuses for certain departing executives. Then management will begin to lay off between 11,000 and 16,000 of the new company’s 86,000 employees. What a Christmas that’s going to be!

Next, new management will reduce fleet size, sell off gate space, combine advertising, reservations, maintenance plus several other functions and – “Voila!” – the new entity will be profitable. What a brilliant plan! But it won’t work.

It won’t work because putting two losers together in the same box just creates a bigger loser, neither of which has the strength necessary to create a profit.

Frankly, mergers have rarely worked. Since the bankruptcies of the 1980s, senior management has marched through merger after merger and restructuring after restructuring, only to exit their failures with huge golden parachutes. There’s going to be a lot of anger, resentment, jealousy, political infighting and backstabbing between the DAL and NWA people.

What management fails to recognize is that larger isn’t better and reducing fares to attract more travelers is counterproductive to profits. They must understand that it’s impossible to make money flying 14 passengers from Milwaukee, Wis., to Columbus, Ohio, on Monday and Friday, or flying 11 passengers from Eugene, Ore., to Walla Walla, Wash., on Tuesdays and Fridays.

Though the stock may move up a tad, I wouldn’t own it. The stock of the new carrier could reach the $12-$14 level, and that’s when it should be sold. The airlines’ combined liabilities exceed by orders of magnitude their combined assets, and their new business plan stinks.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service