Pilot seniority dispute jeopardizes NWA, Delta merger

On hold for nearly a month, the merger deal between Northwest Airlines and Delta Air Lines is in danger of being called off.

Lee Moak, the Delta pilots union chairman, disclosed Monday that the two airlines' pilot groups cannot agree on a list that would define seniority rankings in a merger.

A seniority agreement would determine which planes pilots fly and how much pilots would earn over the course of their careers.

The news, revealed in a letter from Moak to Delta pilots, means the companies will either have to cancel the merger deal -- at least for now -- or proceed with it despite the prospect of a potentially crippling feud within the pilot ranks.

The boards of directors of Delta and Northwest are expected to meet in the coming days to discuss whether the pilots' standoff is a deal killer.

While the Delta and Northwest boards could still go forward, proposing a merger without a pilots' agreement would seem to contradict a Feb. 26 memo that Delta CEO Richard Anderson sent to employees.

In it, he said the company would not complete a merger unless it met all the principles that management set, including that "the seniority of [Delta] people is protected."

If the pilots had succeeded and federal regulators allowed the merger to proceed, it would have permitted the combined company to gain financial benefits from Day 1, a person familiar with the airlines' talks said Monday. That's because the merged carrier would avoid operating with two separate pilot contracts, which has been the case in recent mergers, including US Airways-America West.

Northwest declined to comment Monday on its next move.

Dave Stevens, chairman of the Northwest pilots union, said he still believed "an equitable method exists to combine a seniority list and to achieve a consolidation that is mutually beneficial to both pilot groups."

Neither Stevens nor Moak named the other carrier in their written communications, but they have been intimately involved in private negotiations for weeks.

In his letter, Moak wrote that he pulled the plug on further negotiations over the weekend. "They were unable to address our last proposal," Moak wrote, referring to the Northwest pilots. "They were willing to discuss their last proposal further -- a proposal that in our team's estimation would jeopardize the seniority and career expectations of Delta pilots."

Delta spokesman Anthony Black said that Delta's board would examine the "long-term best options" to protect the interests of employees, customers and shareholders.

In the month since Delta and Northwest completed negotiations on a merger deal, oil has shot above $110 a barrel and the airlines' shares have gone into free fall.

Delta stock closed at $9.23 Monday, down 3.85 percent. The shares are worth less than half the level they traded at last spring, about the time Delta exited bankruptcy and the stock was at $21.95.

Northwest's shares have lost about two-thirds of their value. Northwest stock was at $26.50 the day after the airline exited Chapter 11 last spring. Northwest stock closed at $8.92 Monday, down 6.2 percent, then dropped another 4.71 percent in after hours trading to $8.50.

With oil prices reaching historic highs, pressure for a merger has been increasing from some shareholders, such as hedge funds.

Delta's Anderson said Friday that the carrier is overhauling its business plan to respond to high oil prices and it already has cut some flights.

On Sunday, Northwest CEO Doug Steenland said in an employee message that the carrier must pass along higher fuel costs to customers. Over the weekend, Northwest matched some of its big rivals and increased fares by up to $50 on some routes.

"Higher fuel costs drive higher prices, which result in fewer passengers," Steenland said in a recorded message, adding that "we have to make sure that the size of the airline we fly reflects this lower number of passengers."