The Deltafication of Northwest

  • Article by: LIZ FEDOR , Star Tribune
  • Updated: November 17, 2008 - 5:13 AM

Determined to have a smooth merger, Delta is carefully planning integration changes so customers and employees have a pain-free transition.

The fusing of Delta Air Lines and Northwest Airlines into the world's largest carrier is likely to be the opposite of a "big bang" merger.

Executives from both carriers use the words "thoughtful'' and "methodical'' to describe the gradual approach they are taking to roll out changes for their passengers and employees. They are determined to avoid the high drama and dislocation that characterized the fractious combination of Northwest with Republic Airlines 22 years ago, which was the industry's biggest merger at the time. Aggravated passengers lost their bags and their confidence in Northwest and embittered union employees battled for years to resolve pay and seniority issues.

At the new Delta in the coming weeks, customers will check in for Delta and Northwest flights from the same airport kiosks. Early next year, Northwest airport employees and flight crews will don Delta uniforms. Next summer, some Northwest planes will be deployed on Delta routes.

Bottom line: Delta CEO Richard Anderson wants to move swiftly in merging the carriers, but he and his team are taking the time to plan integration changes in detail because they don't want to compromise the experiences of their customers. It will take about two years to fully integrate the two companies.

"At the end of the day, this new airline will be about unparalleled service of a superior nature to our competition," said Ed Bastian, Delta's president and Northwest's new CEO.

Terry Trippler, who was a Minneapolis travel agent when Northwest and Republic merged, said he's witnessed a "day-and-night" difference in the quality of planning for the Delta merger. "In 1986, 80 percent of tickets were being written by travel agents. I remember when they tried to merge the ticket counters, and we weren't told," Trippler said.

In contrast, he said, Delta has provided a continual flow of merger information to employees, customers and the news media.

Delta has estimated there will be $2 billion in annual benefits from the merger -- about $1 billion in cost savings and $1 billion in new revenue.

Myles Shaver, a professor of strategic management at the University of Minnesota, said Delta will optimize the two fleets and gain some cost efficiencies, such as eliminating redundant management positions. But he said reaching the revenue goal is more of an "open book" because it means Delta must succeed in attracting new customers as well as enticing current customers to fly more on its larger route network.

Delta and Northwest must smoothly blend the flight operations of two fleets with more than 300 planes each. Trippler said it was apparent to him that Delta has made good progress in merger planning because it announced Wednesday that it will be deploying Northwest 747s and A330s on new international routes. He noted that Delta was ready to unveil that key decision only two weeks after federal regulators approved the merger.

In April, when the merger was proposed, Anderson said the Delta-Northwest deal was different from many of its predecessors because it is a merger of "addition, not subtraction." Since there is a small number of overlapping routes, Delta plans to retain all seven domestic hubs from the two carriers, including the Twin Cities.

"The hubs and the strategies of the two airlines were tested pretty hard through the bankruptcy restructuring process," Anderson said in a recent interview. And the carriers concluded it made business sense to preserve the hubs.

Last week, in the face of a global recession, Delta announced it was adding flight capacity for travel between its domestic hubs, including more Twin Cities seats to New York and Atlanta -- where Delta has its headquarters and the world's largest hub.

Web of complexity

The combination will be a work of both science and art. Challenges surrounding the human side of the merger may be more problematic than the detailed technical work that's required to secure a single operating certificate for the new Delta from the Federal Aviation Administration (FAA).

"This merger will be won or lost on our ability to bring the people of our two airlines together," Bastian said.

On Oct. 29 -- the day the merger closed -- Bastian succeeded Doug Steenland as Northwest's chief executive. Bastian will run Northwest as a subsidiary until the FAA gives Delta the green light to merge the carrier's flight operations -- a major milestone that's about 15 to 18 months away.

Meanwhile, Delta's and Northwest's flight attendants and ground workers must decide whether they want to belong to unions. The Association of Flight Attendants (AFA) failed to organize Delta attendants earlier this year, but it has represented Northwest attendants since 2006. The AFA is using the support built in that earlier campaign as a foundation for the new organizing drive affecting the two attendant groups.

The International Association of Machinists and Aerospace Workers (IAM), which represents 12,500 Northwest ground workers, was an outspoken opponent of the merger. But now IAM leaders are focused on persuading their nonunion peers at Delta that joining a union is the way to go.

Delta's executives already have negotiated a four-year labor contract with the Delta and Northwest pilots, who expect to settle their seniority integration differences by next month.

Julius Maldutis, a New York-based aviation consultant, said there are financial benefits to quickly getting a pilots' contract in place, but it also allows Delta to have better employee morale. In contrast, he said, pilot labor issues are still festering at US Airways and America West, which merged in 2005.

At Delta, he said, "I believe the merger will succeed because they really understand how you treat the employees."

Regardless of the outcome of the union representation elections, Delta executives say they want the matter to be resolved soon because it creates anxiety and a distraction for employees.

"You have to earn the trust of employees," said Mike Campbell, Delta's executive vice president who handles labor relations. He emphasized that Delta has followed through on its promises to employees, including granting Delta and Northwest workers stock in the new airline.

In the Northwest-Republic merger, an ugly atmosphere characterized labor-management relations. About a year into the merger, Northwest sued the IAM, accusing the union of illegally engaging in a work slowdown that wreaked havoc on the flight schedule and cost millions of dollars.

Steve Gorman, Delta's chief operating officer, is the point man overseeing the work that's needed to mesh the 75,000 employees of Delta and Northwest with all of the operating systems that help them do their jobs.

People, tasks and tools

Twenty-six merger integration teams have been working for months on approaches to combine their operations. Those teams are addressing everything from safety to on-board meals and flight operations.

"Employees and customers need to be our primary focus," Gorman said. "We can on paper go through the different policies and procedures and practices and define what are the best," he said, but the merger teams are not stopping with those "table-top paper exercises." Gorman said everything is tested to see how changes will affect customers and employees charged with carrying out the merger.

Anderson, who served as Northwest's CEO for four years, brought Gorman to Delta after he moved to Atlanta in 2007 to lead Delta. Gorman held key operating posts at Northwest for five years.

Consequently, this is a merger involving old colleagues at the leadership level. At Northwest, Gorman said, "They are familiar with Richard and our leadership styles and management and how we approach business."

Instead of building relationships with managers at Northwest, Gorman said he's focused on getting reacquainted with people he's known for years.

Anderson, who experienced the boom-and-bust cycles in the airline industry during his 14 years at Northwest, said his goal with the merger is to "build a much more durable franchise." Wall Street analysts expected a wave of merger proposals this year. But Delta was the first and only mover in the consolidation game.

Crude oil hit a record price of $147 a barrel three months after the merger was proposed, and now Americans are facing what may be the worst economic times since the Great Depression. But Anderson is convinced Delta will be a long-term survivor.

"This merger becomes even more important because it gives us more tools and more capability to deal with the economic circumstances we face," he said.

Liz Fedor • 612-673-7709

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