Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA) are now officially one company, and together now represent the world’s largest airline carrier.

The Atlanta-based Delta bought Northwest for $3.63 billion, all in stock, creating a single carrier with a combined enterprise value of $17.7 billion. The landmark deal is expected to ignite an industry consolidation wave, as small or struggling airlines go for size in order to compete with Delta’s newfound market heft at time when a slowing economy and soaring fuel costs are eviscerating profit margins for marginal players.

“Expect [the] dominoes to fall,” Bear Stearns Cos. Inc. (BSC) analyst Frank Boroch wrote in a note to investors.

Four smaller U.S. airlines have filed for bankruptcy in the past month – Frontier Airlines Holdings Inc. (FRNT), Skybus Airlines, Aloha Airgroup, Inc. and ATA Airlines Inc.

And now that the first major hurdle of Delta’s Northwest acquisition has been cleared, talks between UAL Corp.’s (UAUA) United Airlines and Continental Airlines Inc. (CAL) will elevate in priority.

Since 2001, U.S. carriers have shed more than 150,000 jobs and lost more than $29 billion.

Looking ahead, a report from Calyon Securities predicted the U.S. airline industry would lose more than $1 billion in 2008, mostly from the one-two combo of high fuel costs and shrinking demand, Reuters reported. However, top carriers Delta and Southwest Airlines Co. (LUV) are best positioned to weather the storm, Calyon analyst Ray Neidl said.

The new Delta is expected to generate more than $1 billion annually in revenue, even as it streamlines operations and trims overhead. And its balance sheet will have an expected liquidity of about $7 billion at the close of the deal.

“Today, we’re announcing a transaction that is about addition, not subtraction,” Richard Anderson, Delta’s Chief Executive Officer, said in a statement.

What’s In Store for Investors

Under the transaction’s terms, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own – a 16.8% premium based on April 14 closing prices.

The merger is subject to the approval of Delta and Northwest shareholders, and must also pass muster with regulators. It is expected that the regulatory review period will be completed later this year.

Board Members, Pilots Shuffled

Delta’s Anderson will be chief executive officer of the combined company. Delta Chairman Daniel A. Carp will become chairman of the new Board of Directors.

Northwest Chairman Roy Bostock will become vice chairman. Ed Bastian will be president and chief financial officer.

The board of directors will be made up of 13 members, seven of whom (including Anderson) will come from Delta’s board, and five of whom will come from Northwest’s board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association (ALPA).

Delta’s 7,000 pilots sealed the agreement by supporting a new labor agreeing that includes an equity stake.

Northwest’s 5,000 pilots will be asked to join a contract before the deal closes, but Reuters reports that they will use “all resources available to aggressively oppose” the deal after the unions could not agree on how to work under one seniority umbrella, a key determinant of shifts, pay scale and what airplanes they fly.