Northwest pilots try to keep Delta merger deal alive

Northwest Airlines pilot leaders signaled late Tuesday that they are attempting to keep a merger deal alive with Delta Air Lines.

In a memo to Northwest pilots, union officers expressed support for "expedited arbitration" as a way to resolve their seniority integration conflict with Delta pilots.

Meanwhile, Delta's management pressed ahead Tuesday with an aggressive plan to combat high oil prices, including cutting 2,000 jobs, or 3.6 percent of its workforce, and slashing Delta's domestic flight capacity by 10 percent later this year.

"With fuel expected to remain at approximately $100 per barrel for the foreseeable future, we must take action to keep Delta strong," Delta CEO Richard Anderson and Delta President Ed Bastian told the airline's 55,044 employees in a memo.

Separately, Dave Davis, Northwest's chief financial officer, said at a New York investor conference Tuesday that the run-up in fuel prices could push Northwest's 2008 fuel bill to $5.2 billion, about $800 million more than it had projected.

"We have a thorough review underway of our capacity right now, with a particularly hard look at domestic" flying, Davis said. In January, Northwest indicated that it would shrink domestic capacity by 5.5 to 6.5 percent this year. But Northwest CEO Doug Steenland said Sunday that, after the big jump in oil prices, "We have to rethink the size of the airline we operate."

Davis didn't announce any capacity reductions or employee layoffs on Tuesday, and he didn't say when Northwest will make alterations to its 2008 business plan.

Davis and Bastian, who made presentations to Wall Street analysts, declined to answer specific questions about the fate of a potential Delta-Northwest merger.

"With the cost of fuel where it is, we think that the case for industry consolidation remains strong and is in fact stronger than ever," Davis said.

For his part, Bastian said, "We are proponents of consolidation, but it does have to be the right deal."

The two airline executives spoke a day after Lee Moak, Delta pilots union chairman, unequivocally stated in a memo to Delta pilots that the two pilot groups were unable to reach a deal on a combined seniority list.

"We will not seek a transaction for a transaction's sake," Moak said in his memo, in which he explained that he terminated discussions with the Northwest pilots group over the weekend.

Moak described how the two pilot groups convened this month in Washington, D.C., in hopes of a breakthrough. "It became clear that the position of the other pilot group had not meaningfully changed, and therefore the on-again, off-again integration talks were suspended without substantial movement toward a middle ground agreement," Moak wrote. He added that he had informed Delta's top management that the two pilot groups were unable to reach an agreement on blending their seniority lists.

Seniority pact or no merger

Industry insiders, including New York-based consultant Robert Mann, said Tuesday that it's unlikely that Delta's Anderson and his board of directors would proceed with a merger without a seniority list and the support of the Delta pilots.

Jerry Glass, an aviation consultant and former US Airways executive, said Anderson clearly stated that he would only do a merger deal if the transaction met certain principles, including protecting the seniority of Delta employees. "You have to assume they'll adhere to those principles," Glass said.

Dave Stevens, chairman of the Northwest pilots union, and his officers expressed unease with Delta's proposed merger business plan, which they viewed as risky. In their memo, they wrote: "Do we base a seniority list which will affect Northwest pilots for the next 30 years on an aggressive business plan and aircraft options over the next few years which may never be implemented?"

But the Northwest pilot leaders also hinted that they aren't ready to abandon a merger with Delta.

Before the Northwest and Delta branches of the Air Line Pilots Association (ALPA) reached an impasse on the seniority issue, they succeeded in negotiating a four-year combined contract with the management that would run the merged airline.

That deal includes pay raises in excess of 30 percent for Northwest pilots, and smaller raises for Delta pilots, who now have a higher pay scale.

The Northwest pilot leaders wrote that the other pilot group "felt that our economic increases" under the merged contract "were greater than theirs and should be offset with a seniority list more favorable to their group."

If the Delta-Northwest merger dies, it's possible that Northwest pilots could wait a long time before they see substantial improvements to their bankruptcy-era contract that becomes amendable in late 2011.

In the Northwest ALPA leaders' memo, the officers show that they don't want to allow a merger's financial benefits to vanish. If the airlines' executives "are smart and value pilot cooperation, they will encourage us to go back to the table with realistic business plans," they wrote.

"If management feels the time is now for consolidation, they would be wise to encourage both pilot groups to accept expedited arbitration," the Northwest pilot leaders said.

The two airlines and the Delta pilots union did not immediately comment on the Northwest pilots memo.

"The failure of the two pilot groups to reach an agreement at this stage does not necessarily rule out the transaction," a person familiar with the talks said. But in the month since a merger deal was struck between the carriers, oil has risen sharply, the U.S. economy has moved toward a recession and financial markets have become unstable.

"Both boards will have to take a fresh look at whether the [merger] transaction makes sense in light of the facts as they now exist," the person said.

Liz Fedor • 612-673-7709