UPDATED: 7:04 p.m. March 28, 2008
Northwest is trying to revive Delta merger deal


The Atlanta Journal Constitution
Published on: 03/28/08

Northwest Airlines appears to be trying to refuel its proposed merger with Delta Air Lines -- perhaps without as many perks to win support from pilots feuding over seniority.

This time around, the airlines also may be less likely to commit to saving redundant jobs and operational hubs because higher fuel costs have dimmed the industry's prospects, a person with knowledge of the negotiations said Friday.

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Delta management is considering Northwest's overture but may not respond until next week, this person said.

Atlanta-based Delta won't verify the latest in what has become months of on-again, off-again merger reports.

"We can't confirm any details of our board's process," said Delta spokesman Kent Landers, referring to an effort initiated late last year to consider a merger or other strategic options. "We support industry consolidation as a vehicle to ensure Delta remains an industry leader."

But changes in upcoming travel plans for Delta's two top executives may indicate something is in the works.

Delta confirmed Friday that Delta Chief Executive Richard Anderson and President Ed Bastian had dropped their long-held and highly publicized plans to take two key inaugural flights this weekend, but declined to say why.

Anderson had planned to take Delta's first flight Saturday to London's Heathrow airport; that route is becoming available as the result of an open skies agreement that takes effect Sunday between the European Union and the United States. Delta has been seeking the route for decades.

Meanwhile, Bastian canceled plans to go along with Gov. Sonny Perdue on Delta's first flight Sunday between Atlanta and Shanghai, China -- another route Delta has long lobbied to get.

Delta and Northwest, which never publicly confirmed that they were in talks, had been close to announcing a deal last month. However, the agreement stalled while the pilots unions at the two carriers tried unsuccessfully to hammer out a related agreement on how to merge the two pilot group's seniority lists.

The airlines wanted their pilots to work out such differences ahead of time to avoid later delays or operational problems stemming from political and employee opposition. US Airways and AmericaWest did not get pre-merger agreements from their pilots before they combined in 2005. Today, those pilots still are working under separate seniority lists and contracts, weighing down operational integration.

The leader of Northwest's pilots union said any deal between the two carriers still will need the support of the union.

"In order for any airline merger to be successful, the pilots of both groups must be involved and agree to the terms," Northwest union Chairman Dave Stevens said in a statement. "We will reserve our judgement and support until the economic and contractual elements of an agreement have been negotiated."

He said any merger also must be in the interests of customers and employees, "not just the shareholders."

Executives at Delta and Eagan, Minn.-based Northwest could move ahead without consulting their pilots, noted Colorado-based airlines consultant Mike Boyd.

But proceeding without the pilots' OK, Boyd said, could cause major problems down the road, especially if both companies' pilots blame each other for lost benefits.

"You could end up with Hatfields and McCoys in the cockpit," Boyd said. "The question is: Just how much warfare will there be?"

One senior Delta pilot, who asked not to be named, forecast a rough future for a combined airline. Angry pilots who are bypassed will sue, he predicted.

"You get people in the cockpit trying to work together, and you find out they have filed a lawsuit against your parent company," he said. "It's not the best of situations."

Many Delta pilots have become increasingly frustrated with the Northwest pilots' refusal to compromise, the Delta pilot said.

"If they can work it out, fine. If they can't, fine," he said. "We don't mind standing alone right now."

Delta CEO Anderson has repeatedly promised Delta employees he would not agree to any merger that failed to protect their seniority.

Boyd described Anderson as "a man of his word."

"I think he wants to do what's right for Delta's employees," Boyd said. "If he said that, he'll stick with that unless there's some over-arching issue, like the board puts a gun to his head."

Both carriers do not need to merge to survive, Boyd said: Both are relative strong in a financially battered industry, and Delta's recent decision to trim jobs and cut unprofitable domestic routes should improve its position with or without a merger.

The person with knowledge of Northwest's overture said the airlines may move forward with merger talks without a pilot agreement in place, and may offer pilots less generous terms. Before the pilots got crosswise on seniority, the airlines had offered their combined 11,000 work group pay raises and a stake in the deal.

He also said the airlines may back down on previous commitments to preserve jobs because of the steep rise in jet fuel prices since the talks were initiated late last year.

The spot price of jet fuel -- both airlines' biggest expense -- closed at $3.14 a gallon Friday, up 15 percent year-to-date.

Citing soaring fuel costs and the threat of slowing travel demand due to the economic slowdown, Delta announced earlier this month that it plans to cut 2,000 jobs and to reduce capacity of its domestic flight operations by 10 percent this year.


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