One hell of a way to divide a pilot group right off the bat. From the Wall Street Journal:
Pilot Talks Could Boost
Delta, Northwest Deal
By SUSAN CAREY and PAULO PRADA
April 8, 2008 7:56 p.m.
Delta Air Lines Inc. and Northwest Airlines Corp. could be in a position to proceed with their long-delayed merger announcement as early as next week if Delta management succeeds in current talks with its own carrier's pilots, said people familiar with the situation.
With fuel prices at historically high levels and the economy weakening, Delta and Northwest are under increasing financial pressure that has made a merger look even more compelling. A combination of the nation's No. 3 and 5 airlines by traffic would create the world's biggest airline, with a larger network that could boost revenue and reduce some costs.
They also are running out of time to get a transaction vetted by the current Bush Administration Justice Department, a strategy they prefer to waiting for a new team to arrive in Washington in January.
The complicating factor all along has been their pilots, who have been at loggerheads over how to integrate their separate seniority lists in a merged airline. Now it seems that Delta at least is leaning toward treating the pilot groups differently -- at least initially -- if the combination goes ahead, these people said.
Delta and its 6,000 pilots, represented by the Air Line Pilots Association union, have in recent days been in talks about a new contract that would go into effect if the merger is consummated, but only for Delta aviators, said knowledgeable individuals. A spokesman for the Delta pilots group declined to comment. A spokeswoman for the airline declined to comment on any discussions with its pilots or other airlines.
The Delta pilots are being asked to agree to drop certain restrictions in their current labor agreement in order to give the combined airline more flexibility during the first phase of the merger. In return for dropping language that would limit the merged carrier's flexibility, the Delta pilots would receive pay raises, equity and a board seat, sweeteners perhaps not as generous as those contemplated a few months ago but similar, said one person.
Northwest's 5,000 aviators, represented by another branch of the same union, would keep their current contract, which pays them less generously than the Delta pilots even today. That inequity would give the Northwest group an incentive to find accord with the Delta group on seniority, either through negotiation or arbitration, because they then would be able to negotiate improved, Delta-level pay either when the deal closes or afterward, these people indicated.
A spokesman for the Northwest union group declined to comment.
The current Northwest pilot contract doesn't have as much language that would restrict Delta and Northwest in a combination, people familiar with the matter said. But the quicker the Northwest and Delta pilots have the same contract and are on a single seniority list, the faster the combined company could begin integrating its fleet, scheduling and other operations, reaping immediate savings.
People close to the situation said Delta and its pilots are negotiating, and Delta hopes to reach a decision about how and when to proceed by the end of this week. But issues still could arise to delay or kill the deal. It's also not certain the Delta pilot leadership will agree to final terms of a new, post-merger contract in time for a deal to be announced next week, they said. The new contract terms also would need to be ratified by the Delta pilot membership in the coming months.
But the gist of the transaction would contain many of the same features as the one the two carriers were close to announcing in late February, before the pilot seniority dispute derailed that plan. Terms include a share swap a near market rates, with a slight premium for Northwest holders; an investment by European marketing partner Air France-KLM SA; and retention of the Delta name, headquarters and chief executive officer, Richard Anderson.
Seniority is important to pilots because it dictates which types of planes they fly and whether they are captains or first officers, two determinants of pay, along with when they can take time off and whether they would be laid off in a downsizing. Delta pilots claimed Northwest pilots' proposals would jeopardize their members' seniority and hurt their career prospects. Northwest's pilots offered to put the issue to a neutral arbitrator, a plan the Delta pilots rejected.
After a lull last month, Northwest revived the merger idea, making a proposal to Delta that the two go ahead -- but without a common pilot labor contract and seniority agreement covering all 11,000 aviators upfront. That is the way most airline mergers work, leaving it to the pilots after consummation to wrangle over seniority, ultimately put the matter to arbitration, and then bargain with management on a new contract. The process can take years.
By reaching agreement with Delta pilots sooner, the merged airline could shorten that process. Such a step also could win the Delta pilots' support and set the tone of Delta labor relations right from the date of the merger, said one person familiar with the matter. Mr. Anderson, Delta's CEO, has said he doesn't want to do a deal unless his workers' seniority is protected. He was a proponent of trying to work everything out with both pilot groups before the merger, an idea that now is losing currency.