The proposed combination of Northwest Airlines and Delta Air Lines, structured as a stock swap and including a $750 million investment from Air France-KLM Royal Dutch Airlines, is set to be unveiled as soon as the pilots from both carriers resolve issues surrounding seniority.
"The merger agreement is in fact ready to sign. It is done," a source familiar with the negotiations told the Star Tribune Thursday.
Having reviewed the details of the deal Wednesday, Northwest's board is expected to meet again to act on resolutions authorizing management to implement the merger, the source said. "That won't happen until there is a pilot agreement, if there is," the person said.
The carriers' pilot groups are struggling to figure out a way to blend their workforces in a fair manner. Northwest and Delta pilots are represented by the Air Line Pilots Association (ALPA).
Northwest ALPA's executive council met Thursday to discuss the merger, the proposed labor contract and the union's strategy to resolve the seniority conflict. Pilot leaders are expected to continue that meeting today.
"Reaching agreement on economic issues prior to a formal merger would give Wall Street confidence in the new consolidated entity, which means improved value -- and thus improved equity -- for our pilots," Dave Stevens, chairman of the Northwest pilots union, said in a recent memo to his members. "Cooperation adds to the synergies of the new company, which allows it to pay higher wages, another benefit for our members."
If the merger is approved, Northwest and Delta would become the world's largest airline, headquartered in Atlanta.
Air France-KLM Royal Dutch Airlines, which has joint venture business relationships with the two U.S. based carriers, would invest $750 million in the merged carrier, the source said.Negotiators for the pilots and the company have a tentative agreement on a contract, which contains raises of more than 30 percent over four years for the Northwest pilots.
Northwest's board of directors convened in New York City last Saturday to review the merger agreement in detail with Northwest's legal counsel, then met again Wednesday via a teleconference. While the pilot groups are negotiating with each other on seniority, any agreement they reach will have to be reviewed by the Northwest and Delta boards.
Historically and in broad terms, seniority was defined by a pilot's date of hire with an airline. Ranking on the seniority list determines which pilots fly the largest planes, and earn the most money.
But a number of considerations come into play when merging pilot seniority lists.
For instance, a large number of Delta pilots chose to retire a few years ago before Delta terminated its defined-benefit pension plan. As a result, some of the pilots now flying Delta's largest aircraft are younger than their counterparts at Northwest, meaning they could lose their higher-paying aircraft assignments if length of service were the sole criterion for merging the pilot ranks.
In addition to having fewer years of service on average than Northwest's pilots, Delta's pilots are more numerous -- about 7,000 compared with 5,000 at Northwest.
Northwest's own pilot history could work against its pilots, because its seniority list and flying assignments have been affected profoundly by an arbitrator's award that created a 20-year "fence" that protected Northwest pilots following the 1986 merger of Northwest and Republic.
The fence tactic is used to ensure the advancement potential of a pre-merger pilot group for a specific length of time. The rationale is to compensate them for what some would argue is a greater share of assets they brought to the merger when contrasted with the partner airline's pilots.
Northwest pilots, who worked for the acquiring company, were the financial beneficiaries of the fence designated by the late arbitrator Tom Roberts in the merger with Republic.
Delta is the acquiring company in the modern-day merger deal with Northwest. If the merger proceeds without the seniority issue resolved and that issue goes to arbitration, Delta pilots might use the Roberts award as a legal precedent.
Northwest and Delta pilots had hoped to avoid the rancor that has ensued between the US Airways and America West pilots who've dealt with seniority issues in arbitration. Those companies merged in 2005.
Spokespeople for the Northwest and Delta pilots' unions declined to comment Thursday on the seniority issue. Northwest's union has been consistent in its emphasis on protecting seniority for its members.
"A pilot's career is tied completely to his or her seniority ranking and a short-term economic benefit is not worth sacrificing the possibility of advancement over an entire career," Northwest ALPA spokesman Matt Coons said Wednesday.
Liz Fedor • 612-673-7709