Delta’s Principles: ‘A Game of High-Stakes Chicken’
Posted by Heidi Moore
Associated PressThe Beatles sang, “Can’t buy me love.” Delta Air Lines is humming a similar tune in refusing to buckle in labor negotiations related to a potential merger with Northwest Airlines.
Delta is digging in its heels on those aspects of the talks involving the contracts of its senior pilots, refusing to budge until all of its principles are met. And what are those principles? According to an internal memo from Richard Anderson and Ed Bastian to Delta employees (as contained in a research note from FTN Midwest Securities analyst Michael Derchin), they are:
• that the [combined] airline be called Delta, headquartered in Atlanta;
• that the seniority of our people is protected;
• that the pension plans of our employees and retirees are maintained;
• that the network is strengthened and our plans for international expansion are accelerated;
• and, most importantly, that there is even greater job security along with more career opportunities for our people.
Derchin describes the principles and Delta’s stance as “a game of high stakes chicken.” That is because the Delta executives said the airline can live as a standalone company, and he questions that. Interestingly, it was Delta and Northwest who first came down with the urge to merge that has since spread to American and United and is expected by some to spark a massive bout of airline consolidation. Derchin reckons that if the other talks are successful and lead to mergers, Delta and Northwest would find it even harder to compete without the scale that would come from their own combination.
There are other factors pushing consolidation, too. Oil is at $100 a barrel and the slowing economy should push the airlines to do a deal, Morgan Stanley pointed out in a research report. Plus, the regulatory climate may change after the November Presida ential elections, another potential impetus for a merger.
Posted by Heidi Moore
Delta is digging in its heels on those aspects of the talks involving the contracts of its senior pilots, refusing to budge until all of its principles are met. And what are those principles? According to an internal memo from Richard Anderson and Ed Bastian to Delta employees (as contained in a research note from FTN Midwest Securities analyst Michael Derchin), they are:
• that the [combined] airline be called Delta, headquartered in Atlanta;
• that the seniority of our people is protected;
• that the pension plans of our employees and retirees are maintained;
• that the network is strengthened and our plans for international expansion are accelerated;
• and, most importantly, that there is even greater job security along with more career opportunities for our people.
Derchin describes the principles and Delta’s stance as “a game of high stakes chicken.” That is because the Delta executives said the airline can live as a standalone company, and he questions that. Interestingly, it was Delta and Northwest who first came down with the urge to merge that has since spread to American and United and is expected by some to spark a massive bout of airline consolidation. Derchin reckons that if the other talks are successful and lead to mergers, Delta and Northwest would find it even harder to compete without the scale that would come from their own combination.
There are other factors pushing consolidation, too. Oil is at $100 a barrel and the slowing economy should push the airlines to do a deal, Morgan Stanley pointed out in a research report. Plus, the regulatory climate may change after the November Presida ential elections, another potential impetus for a merger.
