ATLANTA (AP) - Delta Air Lines Inc. and Northwest Airlines Corp. have agreed to merge to create the world's biggest carrier, but they must now convince anti-trust regulators and labour unions to move forward.

Shares of both carriers fell sharply yesterday after executives said they currently do not plan to cut the number of US flights beyond what they already disclosed individually - something analysts saw as limiting the cost saving or revenue increases from higher fares the airlines could get from the deal.

Two of Northwest's largest unions also immediately declared their opposition to the long-in-the-works deal, announced late on Monday after several months of talks.

In addition, the US Justice Department said yesterday it was "interested" in examining the proposed merger, which some US lawmakers bemoan will decrease competition and lead to higher airfares.

But executives brushed off the issue, saying they are highly confident they will be able to consummate the deal and integrate the two carriers.

"Bottom line is, we think it's a really good fit," Delta chief executive Richard Anderson, who will head the combined airline, said yesterday during a conference call with analysts.

Delta and Northwest executives said they are aiming to close their deal by the end of this year, which would be before the end of the merger-friendly Bush administration.

They are trying to avoid repeating what happened in 2001, when an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns.

The share-swap agreement announced on Monday calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Anderson.

If the deal becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 percent premium over Monday's closing stock prices.

Based on those prices, the agreement valued Northwest at more than $3.6 billion (2.3 billion euros).

However, shares of both companies fell yesterday, reducing the deal's value of Northwest to $3.3 billion (2.1 billion euros). Northwest fell 48 cents, or 4.3 percent, to $10.74 while Delta lost $1, or 9.5 percent, to $9.48.

Investors had urged a combination of the carriers on the premise of further domestic capacity cuts, which could lead to higher ticket fares and more revenue for the airlines.

Both airlines previously announced domestic capacity cuts for this year, and Delta suggested no more are in the works - though it didn't rule out more in the future if fuel prices continue to rise.

"We feel like we have pruned the domestic system for each respective system," Ed Bastian, Delta's president and chief financial officer, said on the conference call.

As for union support, the airlines tried something novel: They attempted to get their pilots to agree on a joint contract and seniority beforehand. That failed over seniority disputes.

Delta made a deal with its pilots over the weekend, leaving the Northwest pilots to work something out later. On Monday, Northwest pilots declared their opposition to the combination "as it stands," perhaps leaving room for a deal later.

The Delta pilot agreement, which still needs rank-and-file ratification, extends the current contract through 2012 and gives Delta pilots 3.5 percent of the new company.

Northwest pilots concluded that was an attempt "to disadvantage the Northwest pilots economically and with respect to our seniority," Northwest pilot chairman Dave Stevens wrote in a memo late on Monday.

"No pilot group is going to put up with this. No amount of money can sustain a carrier which creates this level of discord," he wrote.

Delta said it will try to reach a combined pilot agreement, including resolving the seniority question, before the merger closes.

"It takes two to fight," said Lee Moak, head of Delta's pilots union.

"We don't see a fight here. We see a co-operative relationship with the Northwest pilots to bring everybody to parity as soon as possible."

Northwest did not even consult with the union that represents its baggage handlers, ramp workers and ticket agents, said Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers.

The deal includes some details that should help build political support.

The airlines said they would close none of their hubs, though Northwest's Memphis, Tennessee, operation and Delta's Cincinnati hub were thought to be vulnerable.

And they said they would try to limit job cuts. The two airlines employ more than 80,000 people.

"They're facing a bit of a delicate balancing act there, because in order to build labour and political support for the deal they would not want to have any lay-offs or close or shrink hubs," said Standard & Poor's analyst Philip Baggaley.

"On the other hand almost everyone agrees that one of the few ways that US airlines can return to profitability would be to reduce the amount of capacity" in the US market.

The transaction calls for Northwest shareholders to get 1.25 Delta shares for each Northwest share.

US-based non-pilot employees of both companies are in line for a four percent equity stake.

Shareholders at both carriers must approve the deal.

A combined Delta-Northwest would have combined annual revenue of $31.7 billion (20 billion euros), vaulting it ahead of Fort Worth, Texas-based AMR Corp.'s American Airlines for the top spot in the US.

It would be the biggest carrier in the world in terms of traffic, before any capacity cuts and divestitures that might be required by anti-trust regulators.