Latest merger takes different tack from Delta's

By Kelly Yamanouchi

The Atlanta Journal-Constitution

When Delta Air Lines announced its merger with Northwest Airlines two years ago, it already had a deal with its own pilots on integration. Delta was clearly the surviving company, and workers for both carriers were promised no front-line layoffs would result.

United Airlines and Continental Airlines, which on Monday announced their planned union, appear to be taking a different tack, and time will tell which turns out to be more successful. Even smooth airline mergers are notoriously complicated and drawn-out, as witnessed by the fact that Delta still has unresolved merger issues on its plate.

Labor issues always head the list of potential complications. There may be lessons to be learned from the Delta-Northwest merger, and “they’re mostly good lessons,” said Seth Kaplan, managing partner of Airline Weekly.

Atlanta-based Delta’s unusual step of striking an agreement with its pilots before announcing its merger with Eagan, Minn-based Northwest has been credited with easing their integration.

It cemented an influential role for the Delta pilots union and its leader, Lee Moak, and dampened concern about how Delta pilots would fare when seniority lists -- which govern pay and career advancement -- were combined.

But at the same time the pre-merger deal with Delta pilots generated protests from Northwest’s pilots, who were not part of the deal initially but later came aboard.

United’s pilots union voiced some support for the deal with Continental, but there was no pre-announcement integration deal. That may be because the United-Continental-merger was put together in a few weeks.

“I think the Delta-Northwest process was quite a bit more deliberate,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Va.

Kaplan said there are risks in either approach with the pilots.

“United and Continental have taken the approach that we don’t want to explicitly tell labor that you’re in control of this thing going through,” Kaplan said.

Even so, “labor still holds cards” because their cooperation is needed for the companies to get the benefits of a smooth combination, he said. Labor woes have delayed the full integration in of US Airways’ 2005 merger with America West, for example, diluting the benefits of the deal.

And even Delta still faces labor issues, since its flight attendants and ground workers are non-union while Northwest’s are unionized. Eventually it will likely have worker elections on union representation, which could be divisive.

There are other interesting differences between the Delta-Northwest and United-Continental mergers. While Delta and Northwest pledged not to lay off any front-line employees or cut any hubs, United and Continental have not gone as far in making those promises.

Such pledges may be aimed at gaining support from politicians, employees and customers, but “those are promises that may be impossible to keep,” Hamlin said. Indeed, Delta has cut jobs since the merger, though it has blamed the economic downturn. And Delta’s Cincinnati hub has shrunk so much in recent years that some question whether it is still a hub at all.

Delta called its acquisition of Northwest a merger, but there was never any doubt it was the surviving company and would be based in Atlanta with Delta’s CEO at the helm. United and Continental call their union a “merger of equals,” and, as if to make the point, plan to use United’s name but Continental’s logo. Continental’s CEO, Jeff Smisek, will lead the combined carrier, which will be based in United’s hometown of Chicago.

The promise of equal footing could generate criticism later on if either group of workers feels they are getting second billing as operations merge, Hamlin said.

“You want the best people to be in charge. When the companies combine, that doesn’t necessarily mean that’s going to be 50-50,” he said. “I’d prefer what Delta did -- they didn’t over-promise on that.”