Delta Air Lines and Northwest Airlines are close to announcing a merger agreement as early as Tuesday, according to reports.

Delta's Chief Executive Officer, Richard Anderson, met yesterday in Minneapolis with Northwest CEO Doug Steenland to discuss the merger plans with his long time rival, Bloomberg reported, citing people familiar with the situation.

The proposed deal would create the world's largest carrier, surpassing AMR Corps's American Airlines, and possibly prompt a series of other mergers that could reshape the U.S. airline industry as the it struggles to combat rising fuel prices.

Northwest shares reached a high of $11.56 in composite trading on the New York Stock Exchange, while Delta reached $10.75.

An official announcement apparently awaits the approval of the boards of both airlines and could come as soon as Tuesday.

Delta, the third-largest US carrier, is hoping that a merger with number-five Northwest would consolidate fuel costs, which surged 77 per cent in the past year.

The two airlines hoped to announce a deal in February, but their pilots' unions failed to agree on how to merge their seniority lists, a crucial factor in airline mergers. Following talks last week, the airlines reached tentative agreements on most issues and are now discussing differences on the size of pilot's pay increase.

The company would retain Delta's name, Atlanta headquarters and CEO Richard Anderson.

The merger accord may increase the pressure on other U.S. airlines to pursue their mergers. Continental Airlines Inc., the fourth-largest U.S. carrier, has held talks with UAL Corp.'s United Airlines and American, the report noted.