Delta Air Lines Inc. is considering an offer from Northwest Airlines Corp. to revive merger discussions, this time without a combined pilot labor contract, sources close to the matter confirmed Monday.
Talks between the airlines stalled last month, after the pilots groups couldn’t agree on how to merge their seniority lists, a critical component in any combined labor contract. After a lull in talks, Northwest approached Delta last week about pursuing a merger even without a pilots’ deal in place.
The Delta board met Thursday and Friday, and on Monday sources said the airline was considering Northwest’s proposal. Executives at both airlines remain in contact, but haven’t scheduled any formal talks or meetings.
Both airlines are evaluating how their companies have changed since the initial deal was struck. With the run-up in fuel prices Delta, Northwest and other airlines recently announced cuts in passenger seating to compensate for the higher cost of fuel. Delta also announced it wanted to cut 2,000 jobs.
Representatives for each airline would not comment Monday.
If Delta does agree to renewed merger talks, the airline would have to revisit an earlier agreement they hammered out with Northwest in January and February, industry experts noted Monday. Any new deal would have to take into account the recent surge in jet fuel prices and the fact that some of the projected merger savings depended on the pilots’ union forging a unified labor agreement in advance.
The price of oil has risen more than $20 a barrel since late January, making the airlines’ biggest cost even larger. Northwest, for one, is expecting to spend almost $1 billion more on fuel this year than it had projected. In addition, four airlines have either shut down or announced plans to do so soon, citing high fuel costs.
The Northwest pilots union wouldn’t comment about the possibility of the airlines pursuing a merger without a pilots’ deal in place, and the Delta pilots union did not return calls.
Atlanta-based Delta and Eagan, Minn.-based Northwest, Michigan’s largest carrier, decided early on that they wanted to come to terms on a combined four-year pilots’ contract — including a merged seniority list — before going forward with a merger. It was a move that broke from tradition and stood to eliminate long-standing pilot labor problems seen in similar mergers, like the 2005 tie-up of US Airways and America West.
As part of the combined contract, the pilots did negotiate significant pay raises as well as an equity stake in the new company and a voting seat on its board. But the two chapters couldn’t reach consensus on a unified seniority list, which determines a pilot’s pay, work schedule and what equipment and routes he or she can fly.
Northwest pilots said they’d be willing to take the issue to an arbitrator, but Delta pilots opposed that move.
The pilots stand to lose financially should the airlines go forward without their blessing.
“[Delta and Northwest] aren’t going to keep those sweeteners for pilots with no labor contract,” said Daniel Kasper, managing director of aviation consulting at LEGC LLC in Cambridge, Mass.
Market forces getting worse
During the past few months of merger talks, Delta CEO Richard H. Anderson and Northwest CEO Doug Steenland issued separate memos to their employees, reassuring them that the airlines wouldn’t go forward with a merger that threatened their pay, seniority or job security.
But analysts say market forces would now make those promises harder to keep.
“The higher oil prices mean the pilots can’t really do anything now,” said Ray Neidl, an industry analyst with Calyon Securities in New York. “They’ve been given their chance.”
Going forward without pilot support would be harder for Delta and Northwest, Neidl said, but the possibility of a more expansive route network that could generate more money could make it worth the risk.
Neidl and others also have speculated Northwest and Delta could forgo a full-fledged merger and instead combine the two airlines under a single holding company, similar to the corporate structure at Air France-KLM. Though it is one company, both brands still operate separately. Such an arrangement would need the same Department of Justice antitrust approval as a normal merger, Neidl said.
Continental Airlines and the defunct Eastern Air Lines operated under a similar structure in the late 1980s and early 1990s.
“It’s something I’ve been recommending for years,” Neidl said. “It allows many benefits of a merger without having to force a labor deal. As oil prices continue up, they’ll have to consider these options.”
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in fatc, i donot think it is good for me. i dislike delta.
