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Roadblock for US Air
By Ted Reed
TheStreet.com Staff Reporter
12/6/2006 5:20 PM EST
Click here for more stories by Ted Reed
Updated from 3:47 p.m. EST
Pilots at Delta Air Lines (DALRQ - commentary - Cramer's Take) have stipulations in their contract that would prevent a merger with US Airways (LCC - commentary - Cramer's Take - Rating) from taking place, the chairman of the pilots union said Wednesday.
The labor pact, which has been approved by the bankruptcy court, "is a controlling agreement in this merger, and it has several provisions that prevent [US] Airways from merging with Delta," said Lee Moak, in an interview.
The contract sets a minimum for block hours flown by Delta pilots, strictly controls the use of regional jets and gives Delta pilots a say over code-share agreements.
Last month, US Airways mounted an $8 billion hostile takeover bid for Delta. The acquisition offer came barely a year after a 2005 merger in which America West Airlines took over the former US Airways and assumed its name. Delta sought bankruptcy protection in September last year.
Moak spoke by phone from Crystal City, Va., site of the one-time headquarters of the former US Airways. That facility has since been shut down, idling several hundred workers.
"This is the definition of synergies," he said. "We will keep your name but close down your facilities, terminate, furlough and use attrition to get rid of your employees, and somehow that's best for the airline industry." He said several thousand Delta employees, including some pilots, would lose their jobs in a merger with US Airways.
Roadblock for US Air
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Moak said he had questioned US Airways executives about their knowledge of pilot contract provisions. "They said they were 'technicalities,' at first, and now it's 'items not anticipated,'" he said. "They really have underestimated the labor component of this merger."
US Airways spokesman Phil Gee said the airline has no plans to reduce the number of Delta pilots. "We didn't furlough one pilot, or any other represented employee, with the America West-US Airways merger, and we have stated from the get-go that we believe the same will hold true [in this case] ," he said.
Pilots are in a position to influence the outcome of the merger effort not only because of their contract but also because they are members of the Delta creditors committee and hold $2.1 billion worth of unsecured debt. That's about a one-eighth share of the total, Moak said. The creditors must approve whatever plan of reorganization is to emerge from the bankruptcy court.
The Delta pilots' contract was negotiated under difficult conditions in court, Moak said. While salaries and benefits were reduced, the pilots gained iron-clad assurances that their remaining jobs would be protected. Delta has about 6,500 pilots, down from roughly 10,000 in 2001.
One contract provision sets a floor for block hours flown by Delta pilots. Another says that if a single Delta pilot is furloughed, the airline must not operate regional jets with more than 70 seats. The provision could impact not only Delta's 76-seat regional jets but also 90-seat planes flown by US Airways.
Roadblock for US Air
Page 3
A third provision gives pilots a say over code-share agreements. "We will not approve any code shares with US Airways or America West," Moak said. In the US Airways and America West merger, the route systems have been combined through code shares until the airlines can secure a single operating certificate.
Separately, Doug Parker, US Airways' chairman and chief executive, said in a statement that his company remains "fully committed" to the proposal to merge with Delta.
He said that if a deal can be reached, it "will create a strong, healthy airline, able to compete long into the future in any industry scenario, benefiting our employees, customers, and the communities we serve, as well as providing Delta's creditors with the opportunity to receive far greater recoveries than what they will receive under any Delta stand-alone plan."
Parker also indicated that he wants Delta's board and creditors' committee to begin due diligence on US Airways' offer. "Only then can they be in a position to truly assess this opportunity," he said. "I am confident that they will do so. We are absolutely determined to take necessary steps to move the process forward."
Delta has said in the past that it wants to remain an independent carrier and that it's aiming to emerge from Chapter 11 in the first half of next year.
By Ted Reed
TheStreet.com Staff Reporter
12/6/2006 5:20 PM EST
Click here for more stories by Ted Reed
Updated from 3:47 p.m. EST
Pilots at Delta Air Lines (DALRQ - commentary - Cramer's Take) have stipulations in their contract that would prevent a merger with US Airways (LCC - commentary - Cramer's Take - Rating) from taking place, the chairman of the pilots union said Wednesday.
The labor pact, which has been approved by the bankruptcy court, "is a controlling agreement in this merger, and it has several provisions that prevent [US] Airways from merging with Delta," said Lee Moak, in an interview.
The contract sets a minimum for block hours flown by Delta pilots, strictly controls the use of regional jets and gives Delta pilots a say over code-share agreements.
Last month, US Airways mounted an $8 billion hostile takeover bid for Delta. The acquisition offer came barely a year after a 2005 merger in which America West Airlines took over the former US Airways and assumed its name. Delta sought bankruptcy protection in September last year.
Moak spoke by phone from Crystal City, Va., site of the one-time headquarters of the former US Airways. That facility has since been shut down, idling several hundred workers.
"This is the definition of synergies," he said. "We will keep your name but close down your facilities, terminate, furlough and use attrition to get rid of your employees, and somehow that's best for the airline industry." He said several thousand Delta employees, including some pilots, would lose their jobs in a merger with US Airways.
Roadblock for US Air
Page 2
Moak said he had questioned US Airways executives about their knowledge of pilot contract provisions. "They said they were 'technicalities,' at first, and now it's 'items not anticipated,'" he said. "They really have underestimated the labor component of this merger."
US Airways spokesman Phil Gee said the airline has no plans to reduce the number of Delta pilots. "We didn't furlough one pilot, or any other represented employee, with the America West-US Airways merger, and we have stated from the get-go that we believe the same will hold true [in this case] ," he said.
Pilots are in a position to influence the outcome of the merger effort not only because of their contract but also because they are members of the Delta creditors committee and hold $2.1 billion worth of unsecured debt. That's about a one-eighth share of the total, Moak said. The creditors must approve whatever plan of reorganization is to emerge from the bankruptcy court.
The Delta pilots' contract was negotiated under difficult conditions in court, Moak said. While salaries and benefits were reduced, the pilots gained iron-clad assurances that their remaining jobs would be protected. Delta has about 6,500 pilots, down from roughly 10,000 in 2001.
One contract provision sets a floor for block hours flown by Delta pilots. Another says that if a single Delta pilot is furloughed, the airline must not operate regional jets with more than 70 seats. The provision could impact not only Delta's 76-seat regional jets but also 90-seat planes flown by US Airways.
Roadblock for US Air
Page 3
A third provision gives pilots a say over code-share agreements. "We will not approve any code shares with US Airways or America West," Moak said. In the US Airways and America West merger, the route systems have been combined through code shares until the airlines can secure a single operating certificate.
Separately, Doug Parker, US Airways' chairman and chief executive, said in a statement that his company remains "fully committed" to the proposal to merge with Delta.
He said that if a deal can be reached, it "will create a strong, healthy airline, able to compete long into the future in any industry scenario, benefiting our employees, customers, and the communities we serve, as well as providing Delta's creditors with the opportunity to receive far greater recoveries than what they will receive under any Delta stand-alone plan."
Parker also indicated that he wants Delta's board and creditors' committee to begin due diligence on US Airways' offer. "Only then can they be in a position to truly assess this opportunity," he said. "I am confident that they will do so. We are absolutely determined to take necessary steps to move the process forward."
Delta has said in the past that it wants to remain an independent carrier and that it's aiming to emerge from Chapter 11 in the first half of next year.
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