Northwest wants to proceed with Delta merger-source

By Kyle Peterson

CHICAGO (Reuters) - Executives at Northwest Airlines Corp NWA.N have proposed that Northwest and Delta Air Lines Inc (DAL.N) go ahead with a planned merger, a source familiar with the talks said on Friday.

The news may revive speculation that Delta, the No. 3 U.S. airline, and Northwest, the No. 5 U.S. airline, could merge to form the world's largest airline. Some industry watchers believe a Delta-Northwest merger would trigger a wave of consolidation in the industry.

Both Northwest and Delta declined to comment.

Northwest shares were up 4.73 percent at $8.86 on the New York Stock Exchange, while Delta shares were up 2.99 percent at $8.60.

The airlines have held merger talks that seemed to fizzle after their pilots' unions failed to agree on plan to integrate their seniority lists.

The Wall Street Journal reported on its Web site that Northwest's proposal suggests offering pilots less generous terms than previously offered.

Both pilot groups are represented by the Air Line Pilots Association (ALPA). Delta's ALPA chapter had no immediate comment. Northwest's ALPA chapter did not return a call seeking comment.

"Basically, unless Delta management has a change a heart, I don't think they're going to do anything without the support of their pilots," said Calyon Securities analyst Ray Neidl.