Pilots react to merger news

[EWR_FO]

Let's remember that at that level, being out of a job isn't really a big deal....

It is when you have an ego the size of Texas.

 

[CAL EWR B737]

Actually...no. It was Gordon Bethune that undid the deal when he found out what Delta's plans were for the combined work force. He felt that it would hurt the CAL employees.

He told the then Delta CEO, Leo Mullin why he was backing out of the deal...and it was Mullin that made the now famous comment...."Labor??? You mean this whole thing came apart over labor????"

....Typical Leo

Tejas

NOT EXACTLY TRUE !! Despite what Gordo wrote in his book. Also Gordo stole the name on his book from the IACP we had a Contract 97 pamphelt titled "From Worst to First" how the 42,000 Continental Employees saved Continental.

What is below is what really happenned on Super Bowl Sunday 98. I was involved in the activities that fateful day.


Below is what happened to us at CAL on Superbowl Sunday 98.

We used to act like real union pilots at CAL. On Super Bowl Sunday 98 I set up the tail on our former Executive Vice President of Human Resources and our former EVP of Operations to a secret location in NYC. If our union couldn't find out where the Continental Airlines Board of Directors were meeting (secret location) our union would have not been able to protect our careers by delivering our threat.

David Bonderman (lead investor and stock holder in CAL) wanted to sell his ownership and two offers were on the table, a full blown Delta merger or the NWA codeshare deal with limited ownership but two separate companies. Our management told us earlier at a breakfast meeting that the Delta deal was by far the leading deal doing into the CAL Board of Directors meeting.

At the time our weak contract included completely substandard pay rates (Our captains made what a third year Delta FO made) and literally no Scope or merger protection should have the Delta deal gone through, we were toast!

Our union Board of Directors had a conference call and told our President do what every you have to do to save our jobs including illegal actions.

Its was in our best interest to have the NWA deal go through since there was no merger and we could finish Contract 97 (brought us into the ball park of most majors on pay and contained some Scope language). Long story short Gordo tipped us off of what was going down. He would have been out of a job a long with many of his buddies if the Delta deal went through. So for that day Gordo and our union were married. Our little independent union illegally threatened to burn the house down and Delta could have what was left if the Delta deal went through without a comprehensive side letter creating scope for the CAL Pilots. Gordo used this threat (Severe Labor Unrest) to persuade Bonderman to go with the NWA deal. In the end that's what occurred Gordo made millions for keeping his job for several more years.

He later claimed victory to all CAL employees that Management saved their jobs nothing about what the pilots did. He also stole from the IACP the name of his book "From worst to first," That was a brochure the IACP made up titled "From worst to first the story about how the 4000 pilots saved Continetal. If you read the Wall Street Journal that came out the following Tuesday it describes this in far more detail. The quote I remember was Leo Mullin(former Delta CEO) in a corporate airplane in Houston early the next morning saying "you mean this deal fell through because of labor?" Apparently Delta had managers in all our hubs ready to talk to our employees about the merger on Monday morning.

Any way I left a lot of details out for brevity but here is one example of how a union does have some limited power to prevent a merger. I can tell you this our union leadership would have given away their first born to have had ALPA Merger Policy on Super Bowl Sunday 98. More than likely from here on out we will find out about any potential mergers when we read about them in the paper. However we at CAL have great news. OUR WEAK AND SPINELESS MEC OFFICERS ANNOUNCED THEIR RESIGNATIONS ON FRIDAY. That coupled with this weeks hopefully successful recall of our IAH CA AND FO rep will allow a strong leadership running the CAL MEC. That is must should a merger be announced.

 

[CAL EWR B737]

Originally Posted by EWR_FO
CAL EWR,

I'm assuming you were working with M.L. (aka P.B.) that day. That is a great story, no matter how many times I've heard it. Thanks.

Yes I was working with Papa Bear. The way it went down. I was called twenty minutes before the Super Bowl started by my boss on the Strike Committee (ALPA PRESIDENT ELECT JOHN PRATER) and was told of our dire situation. He told me my career depended on me somehow tracking CD Mclean and Mike Campbell to the NYC location. Since there was no way for me to get to EWR in time to tail them personally, it was my job to find someone who could. I was calling the crew room and crash pads etc to find someone.

I did find a pilot to help out. I told him to take a cab and follow them and I would pay him back. He couldn't because he had to fly. I told him to follow them and get the license plate of the car they got in. He called me back with the license plate info.

I relayed it back to our war room at the IACP headquarters. Lets just say one of our leaders had a connection with law enforcement and got the phone number of the limo company. A certain individual who will remain nameless broke into the CALEXP CP pilot office and called the limo company with some sob story (that way caller id showed Continental) about he had a huge stack of papers that needed to go with those two CAL Execs they took to NYC from EWR. He pleaded with them because if they didn't get the important documents he had his job was on the line. The limo company bought off on it and gave us the address of the law firm where the emergency board meeting was taking place.

Our Internet gurus in the war room found the phone and fax numbers of the law firm. A letter from the IACP to the CAL BOD was faxed shortly thereafter. They were shocked we found them. Even CAL management wouldn't tell our union leaders where they were going for fear of breaking confidentiality agreements. Many phone calls between our IACP leadeship and Mclean and Campbell insued. We threatened to shut the place down if our pilots weren't protected. They relayed back and forth between the CAL BOD and our union leaders. What was really shocking was what was in that Wall Street Journal article. That reporter had to be sitting at the table to get all of the info into the article. Can someone look up the Wall Street Journal article and post it here? It was the Tuesday following the Super Bowl in late Jan or early Feb 98.

I was tasked with getting picketing permits out side the law firm and Papa Bear was sent stake out the law firm and was in a hotel room across the street. Back then the IACP was so cheap they didn't give us cell phones we had those stupid pagers you could type text messages. I must have sent 100 messages to Papa Bear that night. It was really great to see our union leadership CAL and CALEXP put aside all differences to come together that night to save the CAL pilots careers. Telling this story I feel like listing to the mission impossible theme.

 

[CAL EWR B737]

A Clash of Philosophies Results
In Surprise Switch in Airline Deal
January 27, 1998 12:11 a.m.

Just two days ago, Continental Airlines Chairman Gordon Bethune was resigned to losing his job in a Delta Air Lines acquisition of his company.

By WALL STREET JOURNAL Reporters SCOTT MCCARTNEY, SUSAN CAREY , and MARTHA BRANNIGAN

As he headed to New York from Houston for a late-night directors meeting to consider competing bids from Delta and Northwest Airlines , the nation's No. 3 and No. 4-ranked airlines, Mr. Bethune busily drafted proposed terms of his own termination.
Meantime, a confident Delta had already conducted job interviews with Continental executives and dispatched senior managers to Houston, Cleveland, London and Mexico City to welcome employees to the "Delta Family."
All of which made the phone call that Delta Chief Executive Leo Mullin got in the wee hours of Monday morning that much more of a shock. It was financier David Bonderman, Continental's controlling shareholder and a company director. He was calling from New York to say that Delta had lost Continental.
"Leo, are you there?" Mr. Bonderman said, according to a person in the room with him at the time.
"Labor?" Mr. Mullin finally replied. "You mean this thing fell apart over labor?"
Thorny questions over the merger of labor forces did prove pivotal in driving Continental into the arms of Northwest, which announced Monday that it had formed a global alliance with Continental. But the labor issue -- which centered on preserving seniority for Continental employees in the face of conflicting provisions in Delta's pilot contract -- didn't arise purely as a result of Delta's or Continental's loyalty to its work force. Instead, it symbolized a broader clash of egos and philosophies over future control of what would have become the largest airline in the world.
In a statement to employees Monday, Mr. Mullin said that "protection of employee interests was foremost among the issues discussed. The people of Delta provide an extraordinary foundation on which Delta will achieve ongoing levels of future success, and the discussions on the Continental transaction guarded that as the most important priority."
With three Harvard degrees and a reputation as a savvy corporate strategist, Mr. Mullin was adamant about his vision for reshaping the stodgy Delta corporate culture, entrusted to him when he was brought in as CEO of the $13.9 billion airline last August. Meanwhile, as a longtime buyer and seller of companies, Mr. Bonderman, who would have become one of Delta's largest shareholders, was equally determined to protect his investment by putting his own aggressive imprint on that same culture.
The standoff ended in an industry-shaking coup for Northwest, based in St. Paul, Minn., which began pursuing Continental in earnest in November. Monday, Northwest agreed to pay $519 million in cash and stock, or $60.80 a share, for the stake in the nation's fifth-largest airline, owned by Air Partners L.P., the investment group led by Mr. Bonderman and James Coulter, who once worked together managing investments for Texas billionaire Robert Bass.
Northwest and Continental agreed to merge their route networks, frequent-flier programs and marketing, while keeping their employees and airplanes separate. With their complementary operations in the U.S. and Asia -- Northwest and Continental currently overlap on only eight routes world-wide -- the two airlines will be able to offer complete itineraries from Japan to Latin America, even as far away as Moscow. In 1997, Northwest had revenue of $10.2 billion and Continental had revenue of $7.2 billion.
Northwest will place the Continental shares it acquires -- representing 14% of the company but carrying 51% of the voting rights -- in a trust, and agreed to give up its voting rights except in limited circumstances. The Class A shares, with voting rights equal to 10 times those of Continental Class B shares, were issued to the Bonderman-led investor group when it brought the airline out of bankruptcy proceedings in 1993. Northwest will pay $300 million in cash and issue 4.1 million new Northwest shares in exchange for the Continental stake.
Executives say Delta isn't likely to try a hostile bid for Continental, especially since Mr. Bonderman told Mr. Mullin he will vote his 51% interest with Northwest. Even when friendly, airline mergers have proved to be tricky and often unprofitable affairs, with the high cost of integration and operating problems canceling cost savings resulting from consolidation. Unhappy employees or scheduling snafus can slow down an airline, causing passengers to seek more-reliable carriers. Delta's Pan Am purchase, for example, almost sank the airline.
The alliance creates a network that rivals UAL Corp.'s United Airlines as the largest in the world. And it is likely to force other midsize carriers into the arms of the "Big Three": United, American and Delta. As more corporations and travelers consolidate their flying with a single preferred carrier -- for corporate discounts or personal frequent-flier miles -- airlines have found they must offer huge global networks to attract the best accounts and busiest road warriors.
What's more, since airplanes are in short supply, carriers face little opportunity for growth unless they can expand through partnerships like Northwest-Continental, which executives estimate will steal $500 million annually in revenue from competitors.
Such partnerships allow for a growth in revenue by merging passengers and winning business away from competitors, without the high cost of integrating labor groups and aircraft fleets. On the flip side, however, there aren't the same long-term cost savings that come from consolidating assets in a merger, and there is the potential for ongoing conflict between the separate-but-equal management teams.
"We firmly believe these types of alliances are the future of our industry," Mr. Bethune says.
US Airways, the nation's sixth-largest carrier, is thought to be the next likely candidate for consolidation or takeover, especially since Chairman and Chief Executive Stephen Wolf has begun winning more productive, economical labor agreements and is revamping the company.
United and AMR Corp.'s American both looked at US Air three years ago but deemed it too problematic; both are thought to be more likely US Air partners than Delta, even though the smaller carrier would be vastly more expensive to buy today. Delta would face antitrust scrutiny since it and US Air are heavily concentrated on the East Coast.
"The Street's perception is that Delta is the strategic loser in a Northwest/Continental alliance, because either American or United might be able to do a deal with US Airways that Delta couldn't do," says Samuel Buttrick, an analyst with PaineWebber in New York. "Delta would be left out in the cold."
One winner is Air Partners. It put $66 million of equity into Continental to bring it out of bankruptcy but ran into trouble with a failed attempt to create a low-cost copy of Southwest Airlines dubbed "Continental Lite." Losses from that venture nearly downed Continental, and in January 1995 the company met its payroll only when Mr. Bethune got friends at Boeing Co., his former employer, to return aircraft deposits.
But Continental has soared since then, as the airline improved operations and focused on reclaiming business customers, at the same time as the industry staged a big recovery. Continental shares that traded at $3.25 in early 1995 closed Monday at $56.625, up $2.625. Air Partners will walk away from Continental with a total of $780 million, including the latest transaction and earlier stock sales, a spokesman for the group says. Continental had a market capitalization of $175 million when Air Partners stepped in; today, the Houston company is worth more than $3.6 billion.
It was Air Partners' eagerness to cash out its Continental gains that triggered the bidding war.
In late 1996, Continental's Mr. Bethune flew to Atlanta to try to entice Delta to acquire his airline. Those talks soon collapsed amid a lack of interest from Delta, then headed by Ron Allen. After that, Continental President Gregory Brenneman disparaged Delta executives as a "box of rocks" in conversations with industry executives.

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[CAL EWR B737]

Change at Delta
Last May, Mr. Allen was ousted as CEO, and in August, following a long search, he was replaced by Mr. Mullin. A banker turned utility executive -- and a newcomer to the airline industry -- he moved rapidly to begin shoring up customer service and employee morale, which had suffered under cost-cutting programs. He unveiled an aggressive expansion strategy in Latin America and adopted a plan to refurbish Delta planes and facilities.
But talk of mergers and alliances in the industry continued to grow, and, after learning that Northwest was interested in Continental, Mr. Mullin earlier this month called Mr. Bonderman to explore a merger. Delta named the talks Project Quarry, in an allusion to Mr. Brenneman's "box of rocks" jibe.
Mr. Bonderman, with interests ranging from motorcycles to wineries to food companies, is known to share Mr. Brenneman's concern about Delta management, which he sees as slow and plodding. Eager to protect his investment, Mr. Bonderman insisted from the start that Mr. Mullin hire some of the executives who had helped in the Continental turnaround. Specifically, he wanted Mr. Brenneman and Chief Financial Officer Lawrence Kellner to get similar posts at Delta.
But Mr. Mullin balked at taking the entire Continental slate, and wouldn't put Mr. Brenneman in charge of Delta's operations. He also made clear he wouldn't give up the Delta CEO title, meaning there wouldn't be any room for Mr. Bethune at Delta. "Leo kept saying he wanted to preserve the Delta culture," people involved in the talks say.
Pilot Seniority
Part of that negotiating stance also included Mr. Mullin's determination not to upset his own pilots, who remain bitter about a severe cost-cutting program by his predecessor, Mr. Allen.
Delta's pilots had been pressured into accepting a concessionary new labor contract in the spring of 1996. Then, just two months later, the Delta board abandoned its cost-cutting goals, and pilots felt snookered. Since Delta's pilot contract ensures them a major voice in how pilot groups are integrated and seniority rankings are set in a merger, Mr. Mullin refused to cave in to Continental's demands that its pilots get equal footing in the merged pecking order.
Continental executives argued that, unless the two labor forces were merged based on seniority, as was the case when Delta acquired Western Airlines in 1987 and Pan American in 1991, Continental employees would revolt. Then the merger would become an unwieldy disaster, threatening the value of Mr. Bonderman's investment.
He had reason to be worried. After a breakfast briefing by Continental management on the Delta proposal Sunday morning, Continental pilots began planning a slowdown of the airline that would have begun Monday if Continental's directors had taken Delta's offer, according to persons close to the situation.
Northwest Concessions
Meanwhile, after learning of Delta's bid last Thursday, Northwest scurried to sweeten its offer. It agreed to give up voting rights on the Continental stock except in extreme cases like mergers, giving Continental executives the autonomy they wanted. In addition, Northwest's bid of $60.80 a share in cash and stock was higher than Delta's top bid of slightly more than $57 a share.
Since Northwest was offering to acquire only a limited stake instead of the whole company -- and since full implementation of its plan still requires approval from Northwest's pilots -- it wasn't hopeful. "I was not confident we had the best deal," says Northwest Chief Executive John Dasburg. "This is not the type of process that inspires confidence."
But as the talks entered their home stretch, Northwest had some subtle advantages that began to emerge more clearly for Continental executives. The carriers have cultures that are more similar than those at the Big Three airlines. Both tend to run leaner operations. Both have been to the brink before, with Continental going through two bankruptcy-court reorganizations and Northwest nearly headed into Chapter 11 until it won last-minute concessions from its workers in 1993. And at least four senior Northwest executives have worked at Continental. "One of the most dominant tribal strains at Northwest is Continental," remarks one Northwest observer.
Other Alliances
Northwest also has had long experience -- both good and bad -- in its alliance with KLM Royal Dutch Airlines. And Continental has been an eager and adept arranger of international alliances, and a successful domestic code-sharing partnership with America West Airlines. "Alliances are the best way of dealing with a global customer base," says Mr. Dasburg, adding that Northwest has been shopping for a domestic partner for three or four years.
As the negotiations continued, small disputes with Delta began to raise eyebrows at Continental. A 52-page merger model that Delta presented that was rife with cost-cutting ideas and a plan for 5,000 layoffs was troubling. Delta also asked how much it would cost to terminate the naming deal on Continental Airlines Arena in New Jersey's Meadowlands. Since Delta-Continental would be the biggest carrier in New York, Continental executives didn't understand why Delta wouldn't want the naming rights.
But despite such stumbling blocks, the deal still seemed to be Delta's to lose. On Thursday, Mr. Bonderman traveled to Atlanta from a Caribbean vacation and held five hours of talks with Mr. Mullin and Delta Chairman Gerald Grinstein, in an effort to hash out issues involving executive positions after a merger.
Even into the Sunday-night board meeting, where both bidders had been told to deliver their best and final offer, Continental executives presumed Delta would change its stance on labor, especially since almost every merger in the industry has been carried out under the arbitrated seniority system called Allegheny-Mohawk, including Delta's two mergers, both of which involved Chairman Grinstein. Before the Sunday meeting began, Mr. Brenneman, the Continental president, bet Chief Financial Officer Mr. Kellner $100 that Delta would come around on the labor issue, say people in the room at the time. Mr. Bonderman also figured Delta would come around on the labor issue.
Mr. Mullin, on the other hand, never saw the labor dispute as a deal-killer, and thought it should be sufficient for Delta to extend assurances that the Continental employees would be treated equitably, people involved say. He didn't budge.
Halfway through the seven-hour board meeting Sunday night, Continental called Mr. Mullin, who was huddled with Mr. Grinstein and other top executives in offices at Delta's headquarters, and asked, "Is this it?" There was no specific discussion of the labor issues at that point, people involved say.
Finally, a panel of five independent directors considered the two bids because Mr. Bonderman and several other board members had conflicts of interest. The panel recommended the Northwest offer be accepted, and the full board agreed. At that point, Mr. Bonderman placed the call telling Mr. Mullin that Delta's bid had failed.
With mergers and alliances sweeping through the industry, Mr. Bethune, the Continental chairman, was stunned that Delta didn't change the terms of its bid. "Never in my life have I thought stupidity would save anyone," he told his directors, "but it sure saved me tonight."
Monday, Delta officials strived to put the best face on things. In New York Stock Exchange trading Monday, Delta shares closed down $1.6875 at $112.3125; Northwest shares closed in Nasdaq trading up $4.5625 at $55.3125. "Delta has a great strategic platform for growth and prosperity from our strategic base. Continental offered an add-on, not an essential feature," Mr. Mullin said in an interview. "This was an opportunity that came about. It did represent a chance to substantially improve our operation.
"It didn't work out," he added. "The next time it will."
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