Clock starts ticking on pilot merger negotiations

A veil of silence has encircled the pilot leaders at Delta Air Lines and Northwest Airlines who are struggling to integrate their seniority lists -- the lone impediment to a merger announcement.

Management for the merged carrier already has reached agreement with the pilots on a tentative labor agreement that includes pay raises for Delta and Northwest pilots. But pilot leaders declined to comment Monday on their conflict on the seniority issue.

"The two pilot groups appear unable to reach a decision on seniority, but would not want to be blamed for the cancellation of a merger," Julius Maldutis, president of New York-based Aviation Dynamics, said Monday.

He added that Delta CEO Richard Anderson, who would lead the merged airline, cannot wait indefinitely for the problem to be resolved, so Maldutis suggested that the pilots could be facing an early March deadline. Some on Wall Street already are losing patience.

"Given the spike in crude to $100 [a barrel] and economic concerns that continue to snowball, we find it odd that the pilots are controlling the strategic direction of Northwest and Delta," Daniel McKenzie, a Credit Suisse airline analyst, wrote in a report.

When Delta and Northwest merger talks got serious in January, the two airlines chose to involve their pilot groups as partners. In making that overture, they were in step with the philosophy of John Prater, president of the Air Line Pilots Association (ALPA), which represents pilots at Northwest and Delta.

"We have told the managements and the investment community that if consolidation is going to happen, they must come to ALPA first," Prater said in a December interview. "We can make [mergers] work, or we can destroy them."

"They can proceed without an agreement," Phil Baggaley, credit analyst for Standard & Poor's, said in a Monday interview. "The risk is that that provokes somewhat of a labor backlash and ends up being a distraction as has been the case at US Airways."

US Airways and America West merged in 2005, but the pilot groups failed to integrate their seniority lists. Last May, arbitrator George Nicolau issued a seniority integration decision, which quickly drew a lawsuit from the US Airways branch of ALPA.

The Northwest ALPA executive council met Thursday and Friday, but there was no negotiated seniority list for that body to vote on. Instead, the council said it "remains steadfast and in full agreement that any consolidation must have a reasonable and beneficial seniority list integration for all pilots."

Pay raises and other contract improvements are linked to the realization of a merger.

"From the perspective of the pilot leadership, I expect they would have to weigh the risk of forgoing pay increases if the deal collapses and there is no merger," Baggaley said.

John Peterson, a pilot who retired from Northwest in November, said Delta's Anderson wants to sidestep the labor unrest that could flow from an arbitrator's decision.

"If an arbitrator makes the decision, someone will feel like they won and someone will feel like they lost," said Peterson, who lives in Apple Valley and previously practiced law.

An arbitrator integrated the seniority lists for the Northwest acquisition of Republic Airlines in 1986.

"The Northwest pilots enjoyed a tremendous financial advantage over the Republic pilots for 20 years" because the arbitrator erected a fence around them that ensured they received good flying assignments, Peterson said.

Anderson, a former Northwest CEO, "wants to avoid that if at all possible" in a Delta-Northwest merger, Peterson said. Anderson watched the Northwest and Republic pilots battle during his 14 years at Northwest.

"The fact that they will not proceed without an integration deal suggests that they are convinced that with an agreement in hand, the combined carrier can move quickly to leverage each [route] network across the other network and create the revenue synergies fairly quickly," Swelbar said.

If an agreement is negotiated in advance of a merger announcement, the two pilot groups also would be expected to be political allies for a merger during a regulatory review in Washington.