The 12th anniversary of the merger between Northwest Airlines and Delta Air Lines (NYSE:DAL) is coming up on Oct. 29. If you were a Northwest shareholder in 2008 and are still holding DAL stock, you made out like a bandit.
If you haven’t sold after 12 years, you probably shouldn’t now, despite the damage the novel coronavirus has inflicted on the airline industry.
The merger between the two airlines was valued at $3.4 billion. Northwest shareholders got 1.25 shares of Delta stock for every share they held in the Minneapolis-based airline (Delta’s headquartered in Atlanta).
“We appreciate that stockholders recognize the benefits the Delta-Northwest merger will offer our company, customers, employees, and the communities we serve. This is another milestone toward completing a merger that brings together two unique airlines with complementary strengths that will offer unmatched global service,” said Delta’s CEO at the time, Richard Anderson, said about the merger.
In 2008, Northwest generated $13.6 billion in revenue, which includes two months of sales as part of Delta. Together, the merged entity had $35 billion in sales and 75,000 employees. Further, it is expected to generate $2 billion in revenue synergies and cost savings per year once fully integrated.
“There are global corporations but no global airlines. The race to become the first truly global airline has an incredible reward to it,” Consultant Darryl Jenkins said in October 2008. “The revenue potential is something that we have not seen yet. That’s the synergy that will make this very lucrative.”
Once the all-stock merger was completed, Northwest shareholders owned 41%, and Delta shareholders owned the rest.
Now, let’s fast forward to today.
What’s DAL Stock Worth to Northwest Shareholders
In the middle of the pandemic, Delta shares are off almost 47% in 2020. However, they’ve rebounded nicely in August, up just less than 24% for the month.
In terms of revenues, it generated $47 billion in 2019. Two quarters into fiscal 2020, Delta’s trailing 12-month sales are down to $34.1 billion. This number will likely continue to drop over the next two quarters.
If you go back to 2009, you will see that the merged company’s revenues fell by 18% from almost $35 billion in combined annual sales in 2008 to $28.1 billion a year later. This was due to the economic recession.
In 2008, Delta lost $8.9 billion. A year later, it lost $1.2 billion. From 2010 through 2019, the airline made money every single year, including more than $32 billion in operating profits over the past five years.
In 2020, it’s on track to give some of that back, and likely some more in 2021.
Thanks to Covid-19, the business has turned from sunshine to showers in a hurry. Assuming Northwest shareholders have held onto their shares for the past 12 years, let’s consider what they have to be thankful for.
As I said earlier, Northwest shareholders got 1.25 shares of DAL stock for every share they held in Northwest. Based on a Northwest share price of $9.99 and a $10,000 investment, the airlines’ shareholders would own 1,251 Delta shares today.
As I write this, Delta’s shares are trading at $30.90. Although down significantly from its 52-week high of $62.48, set in January, Northwest shareholders have seen their $10,000 investment turn into $38,656 after its significant drop in March.
The Bottom Line
The Northwest shareholders still holding have an annualized return of 11.9% over the past 12 years, excluding dividends. That compares to 12.3% for the S&P 500.
It might seem like they haven’t made out like bandits.
However, if you consider the return before the March correction and a severe fall-off in business, you’d be looking at an annual return of 18.7%, excluding dividends, or 640 basis points higher than the index.
If you held all these years and didn’t sell in March, you might want to hold on to your shares. Eventually, Delta will revisit $60 a share.
Until they do, perspective is everything.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.