Northwest Airlines and Delta Air Lines executives recognize time is growing short to propose a merger that could win regulatory approval before President Bush leaves office, and they now are seriously discussing multiple merger options.
Some analysts view the airlines as likely to move quickly, because of that narrowing political window and the threat of growing unrest among many shareholders who are demanding consolidation.
A person familiar with the talks said Monday that the airlines could elect to follow a traditional path, announcing a merger and leaving the integration of their union pilot ranks until after the combination receives federal approval.
Delta CEO Richard Anderson, who would lead the merged carrier, and other executives wanted to secure a pilot agreement in advance of a deal, partly because the new airline could avoid a protracted and bitter dispute among the two pilot groups.
If the pilot groups fail to negotiate a seniority deal after a merger takes effect, the Air Line Pilots Association policy allows arbitration to be triggered to resolve the dispute.
Another possible merger strategy involves moving ahead with what some have called a "lite merger" in which there would be only one set of top executives, but Delta and Northwest would continue to operate separately.
However, that approach would be strictly an interim step because it would achieve limited efficiencies. In addition, current pilot labor contracts at both airlines "require that the operations of the airlines be integrated shortly after the negotiation of a combined collective bargaining agreement and seniority integration," said a second source familiar with the talks.
Third option floated
A third option involves the executives informing the two pilot groups that they intend to proceed with a merger, but they want the pilots to make one last attempt at reaching a deal on seniority.
The two airlines have had a merger agreement ready since February, with the combined company to be based in Atlanta.
In February, the airlines executives also negotiated a four-year labor deal with the two pilot groups that called for double-digit wage increases. That new contract was designed to be an inducement for pilots to negotiate the integrated seniority list that would allow the merged airline to combine fleets from the outset. So far, the two pilot groups have failed to reach an agreement.
Now, a news source said, "The one wild card is whether or not you can still achieve enough synergies without having a pilot deal up front."
Talks between the two pilot groups might begin again this week.
Dave Stevens, Northwest pilots union chairman, and Monty Montgomery, the union's vice chairman, met with U.S. Rep. Jim Oberstar, D-Minn., on Monday in Minneapolis. Oberstar opposes a merger because of competition issues. The pilots shared some merger concerns with Oberstar that they have heard from multiple Northwest employees, said a source familiar with the meeting. The Northwest pilots' leadership previously said it could support a merger under the right circumstances.
This spring, the Northwest and Delta boards and executives have reached a stage in which prospects for the airline industry have grown tougher as the U.S. economy stagnates and fuel prices remain at record highs.
In recent weeks, merger discussions between the two airlines have occurred in "fits and starts," one source said, because executives had to focus their attention on capacity cutbacks intended to help Delta and Northwest remain viable on their own in the face of rising fuel prices.
J. Steven Hart, an antitrust attorney who worked in the Reagan administration, said in an interview that the airlines should allow the Department of Justice enough time to complete a merger review by the end of November. He argues that regulators will need at least six months to assess the combination, which he believes would be approved because the airlines' domestic networks are complementary.
Hart views presidential candidates Hillary Clinton, John McCain and Barack Obama as "less likely to be favorable towards airline mergers" than the Bush administration.
'Up against a deadline'
Dan McKenzie, an analyst for Credit Suisse, said that if Delta's board dallies much longer, some shareholders are prepared to mount an effort to replace board members with those who would more aggressively move ahead on a merger.
He said that the window for proposing a merger should be measured in days rather than weeks.
"We are coming up against a deadline," McKenzie said.
Liz Fedor • 612-673-7709