NWA-Delta merger seen as unstoppable

  • Article by: LIZ FEDOR , Star Tribune
  • Updated: August 31, 2008 - 7:38 AM

Minnesota politicians now are trying to save jobs and service, not block the deal.

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U.S. Rep. Jim Oberstar, D-Minn., the incoming chairman of the U.S. House Transportation Committee spoke about airline mergers, the state of the airline industry and his legislative agenda for the 2007 Congress.

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U.S. Rep. Jim Oberstar vociferously opposed the merging of Delta Air Lines and Northwest Airlines even before it was proposed in April. But even he now concedes that it's a "foregone conclusion" among Washington and industry insiders that federal regulators won't block the combination.

The Minnesota Democrat and the Northwest ground workers union have continued to argue that a merger would hurt air travelers and workers. But a confluence of factors -- including high oil prices, the lack of a broad-based coalition of opponents and the fact that no other big airline mergers are pending -- has left most industry watchers expecting government approval of the merger within the next few months.

"Some of the early concern was that this [deal] would set off a wave of mergers. That clearly didn't happen," said Patrick Murphy, an aviation consultant who previously dealt with competition issues as a Department of Transportation administrator. Continental Airlines poured cold water on the consolidation movement in late April when it chose not to merge with United Airlines, which is battling its unions and is on shaky financial ground compared with Continental.

Murphy testified during a merger hearing that there is healthy competition among carriers in the U.S. market. Many U.S. senators peppered Delta CEO Richard Anderson and Northwest CEO Doug Steenland with questions about the merger. But Murphy said, "I didn't see any senators falling on their swords and saying, 'This deal can't happen.'"

In the weeks following congressional merger hearings, the price of oil continued to break records, reaching $147 a barrel.

"The argument about fuel price problems has taken the edge somewhat off the merger" deal, Oberstar said in an interview. Instead of raising more questions about how the merger would affect fares and routes, some members of Congress have joined with airline executives to fight speculators who, they argue, have forced up oil prices. And the tenor in the industry went from consolidation to survival as airlines scaled back flights, fleets and workers.

"Concern in Congress focused less on the particulars of the Delta-Northwest merger than on the question of whether it would be the first of a series of dominoes falling," Northwest general counsel Ben Hirst said last week.

The reality that the Justice Department is reviewing only one big merger "accounts for how peaceful the scene is" in the political arena, he said.

Delta and Northwest have satisfied the regulators' second major request for data about their current businesses. Hirst said there continues to be dialogue among the parties, especially between the government's and the airlines' economists.

Although "the Justice Department has not indicated that they are leaning in any direction," Hirst said the carriers are confident that the department will allow the merger to occur. To stop it, federal regulators would have to seek an injunction, and they would have to make a legally compelling case that the merger would substantially reduce competition.

Indeed, if an airline merger was ever built for federal approval, it is this one. The carriers both provide nonstop service on only 12 of their more than 800 domestic routes. The merger also would marry Delta's network in Europe with Northwest's prominence in Asia.

"This is really the opportunity for the U.S. airline industry to compete on a global basis," Anderson said when he testified before a Senate Commerce Subcommittee. "When we look at the traffic in the United States today, the majority of the traffic carried to and from Asia, Europe, the Middle East and Africa is carried on foreign-flag carriers."

Oberstar, chairman of the House Transportation and Infrastructure Committee, said that around Labor Day he may "prod the Justice Department to look further, to look deeper and be more anticipatory about what happens after they approve this merger." He's concerned that other carriers will use the Delta-Northwest merger as a model for how they can get their own deals cleared for takeoff.

Diverging unions

Northwest unions have taken different tacks in reacting to the merger. Northwest's pilots union withdrew opposition to the merger in June after Delta and Northwest pilots negotiated a new contract that gives them 4 to 5 percent annual pay raises over four years.

Meanwhile, Northwest flight attendants have shifted their focus from immediately demanding job protections and wage increases -- a demand unmet by Delta executives -- to attempting to unionize Delta attendants, who earlier this year voted down a union.

"It doesn't appear that we'll be able to stop the merger," said Kevin Griffin, president of the Northwest branch of the Association of Flight Attendants (AFA).

So in mid-August, Griffin sent a letter to Northwest attendants to inform them that a joint AFA campaign has been launched "to secure union representation at a combined carrier," under the banner "Two traditions, one global airline."

That left leaders of the International Association of Machinists and Aerospace Workers, which represents ground workers, fighting largely alone. The union has urged Congress to use political pressure to try to block the merger, largely because it forecasts job losses for Northwest employees.

Some Minnesota politicians also are fearful of how many Minnesota jobs may be lost through a merger. Under the proposed deal, Delta's Atlanta headquarters would be retained and Northwest's Eagan headquarters -- where about 1,000 people work -- would be closed.

"We don't have what it takes to avoid this merger," said Steve Murphy, chairman of the Minnesota Senate Transportation Committee. "I would hope that we can work through this and get commitments to keep as many jobs as possible in Minnesota and keep as much [flight] capacity here as possible."

Minnesota's U.S. senators, Democrat Amy Klobuchar and Republican Norm Coleman, also have raised concerns about preserving jobs and service.

Coleman said he has "yet to receive detailed information from either Northwest or Delta officials as to the potential negative impact on jobs as a result of the merger."

Loan covenants between the Metropolitan Airports Commission and Northwest require the airline to keep its headquarters and hub in the Twin Cities as well as certain employment levels in Minnesota.

Delta's Anderson, once the CEO of Northwest, has pledged to maintain a hub in the Twin Cities and said that no "front-line" Northwest employees in Minnesota will lose their jobs as a result of the merger.

But the MAC could require the new Delta to pay $230 million in a lump sum to retire Northwest's bond debt when the Eagan headquarters closes. Under the current agreement, Northwest would pay off that debt by 2022.

Klobuchar supports a MAC renegotiation of the conditions on that debt, because it would allow Minnesotans to extend airline job and service commitments for several years. "I will continue to push for the best deal we can get," Klobuchar said.

Sen. Murphy said that he's been "angry and frustrated" by the expected loss of the headquarters, but said the Minnesota Legislature can't stop it because "we don't have much of a fire to put their feet in."

Liz Fedor • 612-673-7709

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