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Apr-13-2008Airlines skid to end of rough week(topic overview)
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Mergers will be discussed, said Greg Rizzuto, communications chairman for the Northwest pilots' local, which is part of the Air Line Pilots Association. He said it is possible the union could take a side. Delta and Northwest were in talks earlier this year, but they stalled after the carriers' respective pilot unions could not come to an agreement on merging seniority lists. Credit Suisse on Friday upgraded its estimates for Delta and Northwest, citing aggressive capacity cuts and the likelihood management teams would work out a deal in the face of unprecedented fuel costs. "With four carriers exiting the industry this past week, crude at $110 and a recession, both carriers are poorly positioned to go it alone," analyst Daniel McKenzie wrote in a report. [1] A person with direct knowledge of the talks between Delta and its pilots union says a new contract is pretty much worked out. It is only a matter of polishing the language and running the agreement by lawyers. Both Delta and Northwest declined to comment on the status of talks or the prospects for an imminent merger announcement. The pilots deal does not resolve highly sensitive issue of how Northwest and Delta pilots would merge their seniority lists, leaving that issue for later. Northwest's pilots are signalling they are unhappy with the situation.[2] A Northwest-Delta marriage would create the world's largest airline. Northwest's biggest hub is at Detroit Metro Airport, where its planes carry three out of every four departing passengers. Northwest and Delta do not need to reach a new contract with their pilots unions in order to merge. The airlines had hoped their pilots groups could agree on a single seniority list before the announcement of a deal, to prevent labor unrest and capitalize on cost-savings immediately. Northwest and Delta pilots could not agree on a way to combine their seniority, which determines pay, work schedules and almost everything else important to a pilot's career. Normally, airlines merge and then their pilot groups negotiate with each other to combine with a single seniority list. That process usually takes years, delaying any cost-savings from a merger.[3]
Talks between the two groups of pilots had been on and off since mid-February. They agreed on many aspects of a merged contract, but were unable to agree on a combined seniority list, which determines a pilot's pay as well as what planes and routes they fly. That prompted many industry experts to declare the deal dead. Last week, Northwest executives asked counterparts at Delta if they'd be willing to go forward with a traditional merger, which would essentially force the pilots to work out a combined labor contract following the transaction.[4] Northwest's 5,000 pilots would be asked to join under a single contract later. The apparent deal is another sign that Delta and Northwest could move forward with their plans to create the world's largest airline as early as next week. The deal does not resolve the sticking point that prevented Delta and Northwest from proposing a merger in the first place last month -- how pilots from both airlines would resolve seniority issues and work together under one company. The two pilot groups had agreed during their negotiations on seniority to back a proposal for higher pay and a stake in the combined carrier.[5] Delta Air Lines and its pilots have agreed in principle on a contract that would clear the way for a merger with Northwest Airlines to create the world's largest carrier, people familiar with the talks said Thursday. An accord would raise pilots' pay and give them an equity stake in the combined airline, which would keep Delta's name and Atlanta headquarters, said the people, who didn't want to be identified because the plan is still private.[6] WASHINGTON (Reuters) - Delta Air Lines and its pilots union have tentatively agreed on a contract that would give pilots a pay raise and an equity stake if the carrier were to merge with Northwest Airlines, according to a Bloomberg report late on Thursday. Northwest and Delta would not confirm the report that Delta had negotiated a separate deal with its 7,000 pilots.[5] Leaders of the Northwest Airlines pilots union gather today for a day-long meeting where they will discuss the increasing likelihood Northwest Airlines will merger with Delta Air Lines. St. Paul, Minn. The pilots have a lot to talk about during their meeting. Delta has made strides in convincing its pilots to support a merger. The carrier has offered raises and other contract improvements to its cockpit crews.[7] Delta Air Lines and its pilots union have agreed on a new contract viewed as a big step toward a merger with Northwest Airlines, but the arrangement could leave Northwest's pilots in a weaker position, industry experts said Thursday.[3] Delta Air Lines Inc. (DAL) pilots have agreed to contract revisions, clearing the way for Northwest Airlines Corp. (NWA) and Delta to announce their long anticipated merger, The Detroit News reports on its Web site Thursday, citing sources close to the matter.[8]
Delta Air Lines and its pilots agreed in principle on a contract that would clear the way for a merger with Northwest Airlines to create the world's largest carrier, Bloomberg News reported.[9]
The airlines had been prepared to announce a combination in mid-February, people familiar with the talks have said. Those plans were postponed because the carriers' pilots, represented by the Air Line Pilots Association, weren't able to agree on a way to protect members' seniority rankings after a merger. To work around the impasse, Delta is drawing up a new contract with just its 7000 pilots, said the people.[10] The latest flurry of activity comes after Delta reached a tentative contract with its pilots that would ease a merger with Northwest, according to people familiar with the talks. Both carriers appeared on the verge of announcing a deal in February before talks broke down over integrating their pilots unions. To work around the impasse, Delta is drawing up a new contract with its 7,000 pilots - including 342 based at Cincinnati/Northern Kentucky International Airport, the airline's second-largest hub.[11] According to Bloomberg News, the contract, agreed to in principle, would cover Delta's pilots at a combined Northwest-Delta airline but would not include Northwest's pilots. That would force Northwest's pilots union to negotiate its own agreement later, after the possible announcement of a merger deal. "It's sort of a backhanded slap at the Northwest pilots," said Douglas Marshall, director of the Aviation Graduate Program at the University of North Dakota.[3] The Delta union's 6,000 members also may vote later on whether to ratify a new labor contract tied to the merger. An agreement struck solely between Delta and its pilots on what their contract would look like after a merger would not have the far-reaching sweep management had hoped for. Executives at Delta and Northwest wanted both pilot groups to agree to how they would work in a combined company.[12] The agreement made Delta the acquiring airline, retaining the Delta name, headquarters and its CEO Richard H. Anderson. Before announcing a merger, the boards of directors of the two companies wanted to have their two pilot groups, both represented by the Air Line Pilots Association, work out a combined labor contract.[4]
The airlines face another big incentive to do a deal sooner rather than later. Industry experts said Delta and Northwest will have an easier time gaining federal government approval for their merger under the Bush administration than its successor. "The hope would be an agreement with the Northwest pilots would follow, at some point," said Jerrold Glass, president of F&H; Solutions Group, a human resources and labor relations management consulting firm that does work for Northwest, but not on this matter. Richard Anderson, Delta's chief executive, had promised Delta's workers that he would protect their seniority in any deal.[3] Airline mergers are inherently difficult to pull off, which is why Delta CEO Richard Anderson wanted the pilot groups from the two airlines to work out an agreement on seniority before any merger announcement. When that process broke down, Delta, the larger of the two carriers, decided to negotiate a deal with its own pilots now and worry about Northwest pilots later. That's not a positive development. According to Star Tribune staff writer Liz Fedor, Northwest pilots had urged their Delta counterparts to settle their differences through arbitration.[13] "A tentative agreement is a long way from being approved," one senior Delta pilot told the nespaper. "It's not like something that will change our lives tomorrow." Reuters noted that the reported deal between Delta and its pilots does not resolve the sticking point that prevented Delta and Northwest from proposing a merger in the first place last month how pilots from both airlines would resolve seniority issues and work together under one company. Executives at Delta and Northwest wanted both pilot groups to agree to how they would work in a combined company.[9]
Merger talks between Atlanta-based Delta (NYSE: DAL) and Eagan, Minn. -based Northwest (NYSE: NWA) have been held up by disputes between pilots over pay and seniority. The tentative contract would increase Delta pilots' salaries and give them a stake in the combined carrier, Bloomberg reported, citing anonymous sources familiar with talks. Northwest's pilots are not covered by the agreement, and pilots from both carriers have yet to agree on issues surrounding seniority. Northwest and Delta both serve Honolulu International Airport.[14] Northwest's pilot contract is not amendable until late 2011. Any raises that the Delta pilots would receive under their new deal "ultimately will apply to the Northwest pilots as well if there is a merger," said a second source with knowledge of the talks.[15]
The airlines would not say anything about the prospects for an imminent announcement of a merger. Delta's apparent deal with its pilots includes pay raises, though less generous ones than were offered months ago. The deal, as it now stands, would not resolve Delta pilots' concerns about merging their seniority list with the seniority list for Northwest pilots. That has been the what's holding up a deal. If the Northwest and Delta pilots can't resolve their differences on seniority list integration, the issue would go to arbitration.[16] The separate pact between Delta and its pilots is considered a crucial step before the Delta and Northwest boards make final decisions about unveiling a merger plan. The Northwest pilot leaders find themselves in an unusual position as a result of Delta's decision to focus on getting a deal only with its own pilot group. Delta management made that choice after Northwest and Delta pilot negotiators reached an impasse in March over how to integrate their seniority lists.[15]
Leaders of the Northwest Airlines pilots union will hold a rare Sunday meeting in Bloomington this weekend to discuss the potential merger between Northwest and Delta Air Lines. It was unclear what action the executive council of the Delta pilots union took at a Thursday meeting in which it was expected to consider a four-year labor deal its pilots negotiated with management.[15] The carriers, which are facing increasing pressure to complete the deal amid rising fuel prices and an economic downturn, may decide to treat the pilots of each airline differently, according to the WSJ report. Delta is in talks with the Air Line Pilots Association -- the union that represents both companies' pilots -- and is asking pilots to drop some restrictions on current labor agreements, according to the report.[17] The Wall Street Journal reported that the carriers, which are facing increasing pressure to complete the deal amidst rising fuel prices and an economic downturn, may decide to treat the pilots of each carrier differently. Citing sources familiar with the matter, the paper reported that a deal could be reached if Atlanta-based Delta (NYSE: DAL), which has been in talks with the Air Line Pilots Association union -- the union that represents both of the carrier's 11,000 pilots -- is able to strike a deal over pilot seniority lists.[18]
Bloomberg News, citing unnamed sources, on Thursday reported Delta management had reached an agreement in principle with the Delta pilots union that would include higher pay and an equity stake in the combined carrier. Any pact would need to be approved by the leaders of the Delta pilots union, a unit of the Air Line Pilots Association, before the carriers could finalize their deal.[12]
Northwest pilots will discuss "industry consolidation and negotiations" in a closed session on Sunday in suburban Minneapolis, the branch of the Air Line Pilots Association at the airline said Friday. In a short statement, the Delta pilots union said their leaders were meeting Friday in a "special session" in Atlanta.[11] Delta Air Lines ( DAL : sentiment, chart, options ) and Northwest Airlines ( NWA : sentiment, chart, options ) are both soaring this afternoon after Credit Suisse upgraded both stocks from "neutral" to "outperform." Analyst Daniel McKenzie recently slashed his 2008 estimates for Delta, but he's encouraged by the airline's aggressive capacity cuts, progress on an agreement with the pilots' union, and a recent decline in the share price. As for Northwest, McKenzie said he's "comfortable" with the airline's valuation in light of a decline in the stock price and decreased industry capacity.[19] Northwest Airlines' pilots could be in a weaker position than their counterparts at Delta Air Lines as the two carriers moved a step closer to a merger that would create the world's largest airline, industry experts said today.[20] The Air Line Pilots Association, which represents the carriers' pilots, failed to agree how seniority rankings among the pilots should be protected after the merger. The Department of Transportation on Wednesday said it plans to grant antitrust immunity to Delta and Northwest, together with their SkyTeam partners Air France, Alitalia, Czech Airlines, and KLM, allowing them to "coordinate their services and act as a single carrier for U.S.-Europe services." "The Department tentatively concluded that the proposed alliance is in the public interest because it features a proposed new and highly integrated joint venture that will likely produce efficiencies and provide consumers with additional price and service options, such as lower fares and more nonstop and connecting flights," DOT said in a statement.[21] Sorting out seniority could take months to complete or even wait until after a merger is finalized. Both pilot groups, represented by the Air Line Pilots Association (ALPA), have said they would not support consolidation unless terms of a deal were favorable to them. Bloomberg, citing people familiar with the talks, said the combined company would retain the Delta name, its Atlanta headquarters, and be run by Delta Chief Executive Richard Anderson. Those three elements were part of the original plan as well.[5]
Northwest pilot union leaders are to meet Sunday in Bloomington, Minn., to discuss merger issues. People familiar with the discussions between Delta and Northwest, Michigan's largest air carrier, said earlier this week that Delta is deciding whether to push ahead with a combination with Northwest without a prearranged deal between their pilots -- a move that could change details of the deal.[22] Spokesmen for Delta and its pilots union, as well as for Northwest, declined to comment Thursday. Executives of both airlines have remained quiet about a possible merger, but have stated publicly numerous times that industry consolidation is inevitable and in the best interest of their companies. Greg Rizzuto, a spokesman for Northwest's pilots union, said it was not notified of Delta's deal with its aviators. "We are unaware of any developments at this time and will withhold specific comments until details are confirmed," Rizzuto said Thursday.[4] ATLANTA, April 11 (UPI) -- Delta Airlines Inc. and its pilots union reached an agreement that could allow merger talks with Northwest Airlines Corp. to resume, U.S. sources said.[23] The pilots union in the U.S. has agreed to a contract with Delta Airlines which will give pilots a pay raise and an equity stake if the carrier merges with Northwest Airlines.[24] Bloomberg News is reporting that the airline and its pilots have agreed on a tentative contract. Sources tell Bloomberg that the agreement would raise pilots' pay and give them an equity stake in the combined airline. Apparently Delta is creating a separate contract for its 7,000 pilots and Northwest pilots will be asked to join under a single contact at a future date.[25] Northwest's 5,000 pilots would be asked to join under a contract later, the sources said. Delta's deal would raise pilots' pay and give them an equity stake in the combined airline, which would keep Delta's name and Atlanta headquarters, sources said.[11]
In exchange, the Delta pilots will get small raises and an equity stake in the merged airline, sources said. The deal effectively opens the door for a merger of Atlanta-based Delta and Eagan, Minn. -based Northwest, which operates its largest hub at Detroit Metropolitan Airport.[4]
Shares in Delta and Northwest airlines rose 9 percent and 4 percent, respectively, Thursday on news that Delta has offered its contract options to its pilots, which could produce a merger as early as next week. According to news reports, Delta pilot leaders are considering the improvements, intended to compensate them for seniority losses they believe they would experience in the merger. There are 12 responses to this article.[26] Delta is expected to be the surviving company. By crafting a new contract with it before a merger with Northwest, Delta pilots "will be assured of their seniority," Marshall said.[3]
Delta Chief Executive Officer Richard Anderson is expected to retain the post in the combined carrier, and Northwest CEO Doug Steenland will probably be a board member. This kind of agreement would definitely give an edge to the Delta pilots over their Northwest counterparts. In order to resolve the issue and go forward with the deal, Delta wants to draw up a new contract with just its 7,000 pilots, reports said.[27] The usual approach in airline combinations has been to have pilots work out a joint union contract after a deal is announced. Atlanta-based Delta and Eagan-based Northwest took a different approach for months, figuring that if they could obtain full pilot agreements in advance they would reap the benefits much sooner.[28] Northwest's 5,000 pilots would be asked to join under a single contract later. Northwest pilots' union will thus be forced to negotiate their own agreement with the merged airline later on, after the announcement of a deal. "It's sort of a backhanded slap at the Northwest pilots," said Douglas Marshall, director of the Aviation Graduate Program at the University of North Dakota.[27]
Now, Delta pilots have higher pay rates than Northwest pilots. Back in February, executives negotiated a four-year labor deal with both the Northwest and Delta pilot groups. It included raises of more than 30 percent for Northwest pilots. Greg Rizzuto, a spokesman for the Northwest pilots union, said Thursday that he would withhold comments about the Delta labor deal "until details are confirmed." He added that "any negotiations that do not involve all parties are rarely successful." The Northwest pilots, who have more years of service on average than the Delta pilots, urged their counterparts to settle their differences through arbitration.[15] Northwest and its pilots union did not return calls seeking comment. Delta and its pilots union said they could not discuss the subject. "For now, it means they are all alone in this process and want to avoid becoming their own worst enemy," said Louis Smith, a retired Northwest pilot who is president of FLTops.com, which does pilot job fairs. "Hopefully, the Northwest pilots have learned from their experience with a 20-year seniority list battle and can reach an agreement on a suitable integration with the Delta pilots. "Arbitration may be the only answer given the disparity in relative seniority, but time will tell," he added.[3] Negotiations to create a combined seniority list may take months to complete, the people said. "It is hard to anticipate Northwest pilots' level of interest in agreeing to an unknown Delta seniority integration proposal," said Robert Mann of R.W. Mann & Co., a consultant for airlines and unions. Chronicle reporter Bill Hensel Jr. contributed to this story.[6]
ATLANTA -- Atlanta-based Delta and its pilots union reached a tentative agreement Thursday that could clear the way for the airline to combine with Minnesota-based Northwest to create a mega-airline, according to one published report citing unidentified sources. People interviewed by The Atlanta Journal-Constitution who are familiar with the negotiations said they were unable to confirm an agreement had been reached.[29] The report detailed that Delta is in talks with the union, and is asking pilots to drop some restrictions on current labor agreements. That would provide a newly combined airline with more flexibility after the merger.[18]
St. Paul, Minn. Delta Air Lines appears to be close to winning support from its pilots' union for a merger with Northwest Airlines. That could mean the airlines may announce a merger early next week.[2] Leaders of Delta Air Lines Inc.' s pilots union were meeting in special session, the union said Friday, as the company kept trying to determine whether to move forward with a combination with Northwest Airlines Corp.[22] ATLANTA, GA (2008-04-10) Delta Air Lines is reportedly negotiating a deal with its pilots to allow the Atlanta company to merge with Northwest Airlines.[30]
NEW YORK - Delta Air Lines gave the green light on a tentative agreement for a merger with Northwest Airlines, which will ultimately create the world's largest carrier, according to news reports.[21] Delta Air Lines Inc. and Northwest Airlines Corp. might make an announcement on a possible merger as early as next week, according to a report by The Wall Street Journal. Talks of a merger between the two airlines, which both service Louisville International Airport, have been on and off for the past few months.[17] Talks of a merger between Delta Air Lines Inc. and Northwest Airlines Corp. have been on-and-off for the past few months.[18]
NEW YORK - Credit Suisse upgraded Delta Air Lines Inc and Northwest Airlines Corp to "outperform" from "neutral," and said the merger between the companies is near certainty. Get stories by e-mail on this topic.[31] April 11 (Reuters) - Credit Suisse upgraded Delta Air Lines Inc (DAL.N: Quote, Profile, Research ) and Northwest Airlines Corp (NWA.N: Quote, Profile, Research ) to "outperform" from "neutral," saying both companies seem to be keen on pursuing their merger plans.[32]
The on-again, off-again merger between Delta Air Lines and Northwest Airlines looks to be on again, FTN Midwest Securities analyst Michael Derchin wrote in a report issued Friday. "Dramatic structural changes are under way: mergers, global joint ventures, liquidations and bankruptcies," he said. "This shake-out is needed for the industry to emerge healthier in the next cycle."[1] Merger discussions between Eagan-based Northwest Airlines and Atlanta-based Delta Air Lines appear to be on a fast track.[2]
Leaders of the pilot unions at Delta and Northwest airlines are meeting separately in the next few days after the potential merger of the carriers has been revived this week.[11] A major hurdle on that front was cleared for Northwest and Delta Thursday, after Delta pilots agreed to contract revisions. The airline industry's largest union, the International Association of Machinists, remains opposed to consolidation among the airline companies, saying they aren't in the interests of either employees or passengers. Even if crude rises just 4.5% from its current level, to $115 a barrel, the standalone plans of Northwest and other airlines are thrown into jeopardy, McKenzie said.[33] According to the report, leaders of the Delta pilots' union agreed to the contract revisions in exchange for small raises and an equity stake in the merged airline.[8]
One published report indicated Delta and its pilots union have "agreed in principle on a contract" that could clear the way for the carrier to combine with Eagan, Minn. -based Northwest to create a mega-airline.[12] Leaders of the Delta pilots union, which represents about 7,000 aviators, agreed to changing language in the contract that would have seriously complicated a merger with another carrier.[4]
The contract changes mean Delta can accept Northwest's offer to proceed with the merger without a combined pilots agreement beforehand, the Detroit News said.[8] The proposed merger is in advanced talks and may be announced next week, Bloomberg reported. If the deal goes through, pilots income will be raised and will be receive an equity stake in the new combined airline and Delta's name will be kept, along with its Atlanta headquarters.[21] Delta, the third-largest U.S. carrier by traffic, is betting that combining with No. 5 Northwest will boost revenue and reduce costs after jet-fuel prices surged in the past year. If a deal happens, Houston-based Continental Airlines and United Airlines are widely expected to announce a merger of their own to match the size of the new Delta-Northwest and American Airlines.[6] The combined airline, which has little overlap between routes, has been estimated to be valued at $20 billion a year. For as much as the back and forth has created an emotional tension for the communities, such as Memphis, that have a Northwest or Delta hub, for the players at the center, the issue is job security and money, said FedEx captain Charles Warner. "Whether it is straight money, as in bonuses, or in protected seniority, which allows you to bid more trips, it's about money," he said. Management at Delta and Northwest turned the negotiations over to union leaders this winter, hoping they could work out a seniority deal quickly, allowing the combined carrier to get off the ground without union rancor.[26] Delta'''s deal is separate to one which will be negotiated later by Northwest's pilots. They will be asked to join under a single contract. The deal has not fixed a sticking point that has both airlines wondering how to resolve seniority issues and work together under one company.[24] Delta and Eagan, Minn. -based Northwest first proposed the deal in 2004. The two airlines also reportedly have gone back into merger discussions, which were derailed by the inability of their pilots to agree on seniority issues.[34]
Sources say that while it looks like a deal may finally get done, it could also fall apart once again. For their part, officials with Northwest's pilots union said they are unaware of any developments in merger talks at this time.[16] A spokesman for Northwest's pilots union, which has about 5,000 members, indicated that the merger could run into serious obstacles. "We are unaware of any developments at this time and will hold specific comments until details are confirmed.[12]
The Northwest pilots union's two top leaders met Wednesday in Washington with U.S. Rep. Jim Oberstar, D-Minn., who has been one of the most outspoken critics of the planned Delta-Northwest merger and other potential mega-mergers.[29]
Delta CEO Richard Anderson, who would lead the merged carrier, wanted to follow a new path and secure labor peace between the pilot groups in advance of a merger. Once that appeared unattainable, Delta chose to work with its pilots now and negotiate with Northwest pilots later.[15] "With Northwest's Asian capacity feeding into Delta's Atlantic capacity, you wind up with a stronger capital structure and stronger company that is more competitive and has more purchasing power," Moore said. "That means more job security. It means you don't have to constantly wake up and worry because you see XYZ carrier is on the verge of going out of business due to fuel prices. "If if I were one of those pilots, I'd see this merger as a great opportunity and say, 'We've got to figure out a way to make this work.'"[26]
The lack of agreement, however, wasn't enough to kill a deal. Delta and Northwest face enormous pressure from their major shareholders to marry each other. Both carriers' stock prices have been in a tailspin, and the airlines now face soaring jet fuel prices and an economic downturn.[3] The paper cites an anonymous source about the latest deal. Under the agreement, pilots would let the airlines merge first and then work with Delta on combining both companies' pilots unions.[30] Delta's board met last Thursday and Friday and urged executives to move forward with the deal. Delta's management had to get its pilots union to agree to the contract modifications, which were mostly finished as of late Thursday, sources said.[4]
Delta's management has reached agreement on a new labor contract with its pilot union, according to Bloomberg News.[20] The agreement however does not resolve the main issue of seniority. Although there is no binding on the Airlines to reach any new contracts with the unions before the merger, but they were hopeful that the unions will resolve their issues before the merger is finalized. This agreement can help in moving forward with the merger plans as early as next week. This would create the world's largest airline.[27] Continental management and the union have been in talks on a new contract, with discussions on economic issues set to begin soon. "Whether it's current contract negotiations or merger, the union will act decisively to protect the interests of the pilots," Pierce said.[1]
The union's 6,000 members also may eventually vote on whether to ratify a new labor contract tied to the merger.[29]
Rumored disagreements over pilot seniority have kept the merger from happening. Neither Delta nor its pilots union is commenting on a report in the Atlanta Journal Constitution.[30] Northwest's pilots union called a meeting for Sunday amid reports that Delta's pilots were trying to work something out with Delta's management.[1] In return, Delta pilots would get pay raises, equity and a board seat. Northwest's pilots would keep their current contract, under which they are paid less than Delta pilots, the report said, which may pressure Northwest pilots to partner with the Delta group on seniority.[18] During that period, Delta management would be expected to negotiate with Northwest pilots on phasing in pay changes to bring the Delta and Northwest pilots under a common contract. Both pilot groups are represented by the Air Line Pilots Association.[15] Published reports say that the Northwest unit of the Air Line Pilots Association is meeting Sunday to discuss a possible merger, and that the Delta ALPA unit met Friday for the same reason.[35] Northwest and Delta pilots are each represented by different chapters of the same union, the Air Line Pilots Association.[3]
Neither Delta nor Northwest officials would comment Thursday. Other pilots, including longtime FedEx pilots, say the deal could be sweetened with labor-protection provisions guaranteeing Delta pilots more monthly flight hours, for instance, or a certain number of slots on Northwest 747s, the largest planes in the combined fleet. While Northwest pilots would also get extra benefits, reportedly after the deal is done, they are not in line for consideration now. Northwest pilot spokesman Greg Rizzuto said his group is willing to work constructively with any management group or pilot group. "However, we will exercise our contractual rights in order to protect the interests and careers of every Northwest pilot," he said.[26]
"In any merger, there are big winners, medium-sized winners and little winners," said John Moore, president and chief executive of the Memphis Regional Chamber and a former Northwest executive. "The little winners, in this case, the Delta pilots, don't like what they see." Neither side has been able to ultimately walk away, he said, because both realize that working for the world's first trans-Pacific and trans-Atlantic carrier has benefits beyond what either carrier could offer independently.[26] We'd love to be optimistic that a merger of Delta and Northwest could create a stronger airline more able to compete globally, with benefits for employees, customers and Minnesota. If the pilot negotiations are any indication of how this story will play out, there's more reason for pessimism.[13]
Talks between the airlines are ongoing since January as pilots failed to compromise on seniority, which ultimately determines the size of a pilot's paycheck. Delta has said it wouldn't agree to a merger until its workforce had fully agreed with the terms.[31] Neither Delta or Northwest airlines would comment on the status of talks with the Delta pilots.[16]
The U.S. Department of Transportation will propose letting Delta Air Lines Inc. and Northwest Airlines, along with four overseas carriers, combine their transatlantic alliances.[34] Shares of Northwest Airlines Corp. and Delta Air Lines Inc. received a boost Friday after investment bank Credit Suisse upgraded its rating of the two companies.[36]
NEW YORK, Apr. 11, 2008 (Thomson Financial delivered by Newstex) -- The airline sector fell Friday, as Frontier Airlines' bankruptcy filing cast a pall on sentiment, and offset analyst upgrades of Delta (NYSE:DAL) Air Lines and Northwest Airlines. (NYSE:NWA) The Amex Airline Index fell 4.1% to 25.35, the lowest level seen since March 18.[37] There were new rumblings Thursday that a merger between Atlanta-based Delta Air Lines and Northwest could be close, but it won't be the pretty marriage some executives first envisioned.[12]
The proposed merger with Northwest may be announced next week, the people said. ''With oil at $US110 per barrel and the weakening economy, Delta probably got to the point where they felt like they needed to move ahead,'' said Michael Derchin, an analyst with FTN Midwest Research Securities. in New York. ''It always made strategic, long-term sense for these companies.''[10] Northwest used to own a minority stake in Continental and still retains a "golden share" that prohibits Continental from entering a merger ' unless Northwest does so first. If Northwest acts, Continental has the right to buy its way out of the restriction for just $100. Although experts assume Houston would remain an important hub and Latin America gateway for any Continental-related entity, it's not known where the corporate headquarters would be. "With oil at $110 per barrel and the weakening economy, Delta probably got to the point where they felt like they needed to move ahead," said Michael Derchin, an analyst with FTN Midwest Research Securities Corp. in New York. "It always made strategic long-term sense for these companies."[6]
Northwest traded up 3.5% to $11.25 a share and Delta gained 4.6% to $10.20 in recent trading. Other airline stocks were up several percentage points, including Continental Airlies Inc. ( CAL) and UAL Corp. (UAUA), which are rumored to be considering a merger in response to a Northwest/Delta deal.[33] "We believe if Delta and Northwest get together, United and Continental will follow shortly thereafter," Crissey wrote. "Additionally, we expect that Continental would receive a premium in such a deal." Continental, which held merger discussions with United earlier this year, had no comment on the issue Friday.[1] If a merger finally is announced, it will be structured as a Delta acquisition of Northwest. That deal would then be reviewed by the U.S. Department of Justice for competition issues.[15]
Under ALPA merger policy, the two sides ultimately could end up in arbitration. "A merger would be very positive for both employee groups," Mike Ristow, a retired Northwest pilot and former Northwest board member, said in an interview. Based on the weakness in the economy, high oil prices and need for industry consolidation, Ristow said, "It is not in their best interest to have this deal go sideways."[15] Even though Delta has 7,280 pilots to Northwest's 4,525, Northwest pilots have more seniority. Under most merger scenarios, they would be guaranteed the best routes and the biggest planes.[26] A new law passed at the end of last year ensures that Delta could not simply put Northwest pilots at the end of the Delta seniority list.[3] Insiders say Northwest pilots insisted the seniority be based on hire-date alone, which was unacceptable to the Delta pilots.[26] The union warned that negotiations that don't involve all parties are rarely successful. One big question facing Northwest pilot leaders is whether the terms offered to the Delta pilots are acceptable for their own members. If not, what's the response.[7] We would suggest, however, any negotiations that do not involve all parties are rarely successful," said Northwest union spokesman Greg Rizzuto. On its Web site, the Northwest pilots union told members that its leadership committee has scheduled a special meeting Sunday in Bloomington, Minn., to "update the on industry consolidation and negotiations."[12]
Leaders of Delta Air Lines' pilots union met in a special session in Atlanta on Friday.[28] Leaders of Delta's pilots union chapter met Friday in a special session, presumably to discuss the merger.[36]
Delta's new deal with its pilots suggests a merger announcement could be on the horizon, but seniority conflict lingers.[15] A person with knowledge of the talks between Delta and its pilots said a deal involving pay raises is pretty much worked out. The source said it's only a matter of polishing the language and running the agreement by lawyers.[16] The four-year Delta pilots agreement includes raises of about 7 percent in the first year followed by pay increases of 4 percent each in years two, three and four, a person familiar with the deal said Thursday.[15]
Pilots of Delta airlines have reportedly come to an agreement with the company that would give pilots a small pay raise and an equity stake in the merged airline.[27]
The agreement will only cover Delta's pilots at a combined Northwest-Delta and would not include Northwest pilots.[27] About two weeks ago the companies resumed discussing a deal, even without full pilot buy-in. It could be a risky strategy. U.S. 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.[12] Pilots from both airlines have reportedly come to an agreement over how to integrate their seniority lists which means the merge between the two airlines can finally move forward, according to various media reports.[31]
Either way, the two pilot groups have yet to resolve the thorny issue of seniority. How the unions combine their seniority lists can have a major impact on a pilot's long term earnings. The two groups have already tried once to merge their lists and gave up.[7] The two pilots unions met for weeks but got stuck on a key issue -- seniority -- and ultimately walked away from the negotiating table. Seniority is a key issue for pilots as it determines their pay, what planes they fly and which routes they get.[12]
Delta's pilots generally have lower seniority than Northwest's pilots because hundreds of the Atlanta carrier's most senior pilots retired before the company filed bankruptcy in 2005. [12] Delta jumped 84 cents, or 9.4 percent, to end at $9.75 while Northwest rose $1.22, or 13 percent, to $10.87. The merged company would surpass AMR Corp.' s American Airlines as the world's biggest carrier, which is currently struggling with inspections and has canceled 2,400 flights this week. This article is copyrighted by International Business Times.[21] The increase since is costing Northwest alone more than $1.5billion a year, president Doug Steenland told employees in March. The U.S. Department of Transportation said it expected to approve an expanded alliance that would allow Northwest, Delta and a handful of European carriers to fly as one airline over the Atlantic Ocean, giving them the ability to offer additional price and route options, plus frequent-flier reciprocity.[26] Delta, the third-largest U.S. carrier by traffic, is betting that combining with No. 5 Northwest will boost revenue and lower costs after jet-fuel prices surged 78 percent in the past year.[10] In the case of Delta and Northwest, the airlines could cut up to $1.5 billion a year in costs, according to one analyst, and could gain revenue by attracting profitable business travelers to an expanded worldwide route network.[4]
A merger between Delta and Northwest would set in motion a complex chain of events that could change the face of aviation in the United States. "This is a tectonic shift in the industry structure," said airline analyst Robert Mann.[29] The airlines also felt pressure to get the merger through the required anti-trust review by the U.S. Justice Department before the Bush Administration leaves office next January, in expectation that it would be more amenable to a marriage than the next president. Industry analysts maintain that mergers are the best bet for airlines as they face record-high fuel prices and daunting competition from low-cost carriers like Southwest.[4] With record-setting fuel prices roiling the airline industry, carriers Friday embraced a new fare increase, and dormant merger talk again gained steam.[1]
A wave of mergers has been anticipated in the airline industry as financially battered carriers struggle with soaring fuel costs, a weakening economy and battered stock prices.[29] A Delta-Northwest combination could kick off a wave of mergers among financially battered carriers struggling with soaring fuel costs, a weakening economy and withered stock prices.[12]
Credit Suisse said the agreement is a step forward towards the merger of the two companies, which have aggressively cut back capacity in recent times. It also said with crude oil prices at $110 and a recession looming large, both carriers are poorly positioned to withstand the situation as standalone operations. Credit Suisse has a price target of $15 on both stocks.[32]
If crude oil hits $120 a barrel, McKenzie said it will be like a Category 5 hurricane sweeping through standalone business plans. Crude oil set a new record of $112.21 a barrel earlier this week, up from $70 a barrel last summer. Steve Hart, a Washington lobbyist, said any merger need be announced by May 30 "or there's no way to get a deal through" in time for the U.S. Department to review it before President George Bush ends his term office.[31] Delta, the third-largest U.S. carrier by traffic, and No. 5 Northwest, had intended to announce merger plans in mid-February, but was postponed due to a stalemate in deciding on a ranking system.[21] Credit Suisse analyst Daniel McKenzie upgraded Northwest and Delta to outperform, saying there's a 98% probability for a deal. "Given the risk to standalone plans in the current volatile macro environment, believe a NW/DL deal has become a strategic imperative for both carriers, with or without labor," he wrote in a note to clients.[33] In mid-February, Delta, the nation's third-largest airline, and Northwest, the fifth largest, agreed to merge in a one-to-one stock-swap deal, the result of more than a month of intense negotiations.[4] Continental has said it would consider a merger if Delta and Northwest consummated a deal.[23] It's too soon to weigh in on whether a merger of Northwest and Delta airlines is the best option for the companies, their employees and customers, and their home states.[13] Northwest and Delta may make an announcement on a possible merger as early as next week, according to a report Wednesday in The Wall Street Journal.[18] Northwest's pilots have a special meeting scheduled for Sunday. Sources said executives with both companies hope to announce a merger next week.[36]
Any merger would have to be approved by federal regulators and final consolidation of airline fleets, routes, computer systems and pilot contracts could take years.[12] Executives at the two airlines hoped having a blended contract ahead of time would prevent problems among the pilots and quicken the merger process.[4]
American Airlines parent AMR Corp. (AMR) may also be looking to combine, McKenzie said, and Alaska Air Group Inc. (ALK) is "an opportunity of last resort" for American. He believes that American's high labor costs, combined with likely pay concessions for labor groups in order to get a merger done, will likely make an American acquisition of Alaska Air "a money-losing proposition."[33] McKenzie has viewed airline consolidation as likely for months. In January he wrote that airline consolidation "must result in lower costs, lower fares, better service, a rationalization of high cost capacity, & hence, a more efficient and profitable industry." He said then that the largest risk to consolidation is the airlines' ability to deal with labor concerns.[33] There's been little good news for the airline industry, which is battling a nationwide economic downturn and high fuel costs. Many analysts see industry consolidation as the only solution to those problems.[13] Airlines are struggling with a 76% surge in the price of jet fuel in the last year. "It's going to be difficult to find any profits with stand-alone plans," said Kevin Crissey, an analyst at UBS Securities in New York, citing fuel costs and a weakening U.S. economy.[38]
Analysts have said that with soaring fuel prices, airlines like Northwest and Delta will have to find ways to park older and more expensive aircraft as well as shut down poor-performing hub connections.[31]
A combination of Delta (NYSE: DAL) and Northwest Airlines (NYSE: NWA), which at one point had been projected to be worth $20 billion, would create the world's largest airline in terms of traffic.[18] The original claim was for $7.6 million. Northwest Airlines, which emerged from bankruptcy in May, 2007, is now swapping its new stock to pay such claims.[39] Northwest Airlines tacked on 0.7% to $10.95, with Credit Suisse upgraded the stock to outperform from neutral amid a more attractive valuation and reduced industry capacity.[37]
The index has now lost 26% since the end of 2007. Frontier Airlines tumbled 73% to 42 cents after the Denver-based air carrier said overnight that it voluntarily filed for Chapter 11 bankruptcy after an 'unexpected attempt by its principal credit card processor to substantially increase a 'holdback' of customer receipts' threatened to severely impact liquidity. Elsewhere, Delta shares rose 4.3% to $10.17, and hit a 3-week high of $10.40 in intraday trading, after Credit Suisse raised its rating to outperform from neutral, citing an 'appealing' reward vs. risk profile.[37]
Delta pilots, who have fewer years of service on average than the Northwest pilots, wouldn't agree. [13] The union also signalled it isn't happy being cut out of talks between Delta the Delta pilots.[16] Union spokeswoman Kelly Regus said in a memo to rank-and-file Delta pilots that the Master Executive Council meeting was taking place in Atlanta. She did not say how long the meeting would last or what was being discussed.[22]
Delta's pilots union met in special session Friday, according to a memo to union members from spokeswoman Kelly Regus.[1] Continental's pilots union noted Friday that it took steps to be ready in the event of a merger announcement and has conducted meetings with counterparts at United.[1]
An agreement between Delta and its pilots would clear a major hurdle to a long-anticipated merger, but it probably won't lead to the pretty marriage some executives first envisioned.[29] "A tentative agreement is a long way from being approved," said one senior Delta pilot, who asked not to be named. "It's not like something that will change our lives tomorrow."[12]
In February, there was a four-year agreement on the table with the two pilot groups that would have included raises of more than 30 percent for Northwest pilots.[13] Sources claimed that the two sides have reached a settlement agreement, in which the company agreed to pay the pilots $5.9 million in total.[39]
Headquarters would remain in Atlanta, but the two carriers could initially operate under a holding company that would produce some cost savings but avoid thorny issues like seniority standing for the carriers' 11,000 pilots. "It's easier because you don't do the hard work," Mann said.[29] The main hindrance to the contract has been to decide the seniority for the 12,000 pilots who will work under the combined carrier.[27]
Northwest's 5,000 pilots would be asked to join under a single contract later.[6]
The union, which represents pilots from Eagan, MN based Northwest, stated that the suit addressed several grievances that the employees had.[39] ALPA (union) bylaws dictate that seniority integration go to arbitration for a neutral outsider to decide what's fair for both pilot groups.[24] Capt. Jay Pierce, chairman of Continental's pilots union, said Friday his group's position hasn't changed.[1]
Kolber says Anderson's statement could hurt Delta's chances of pushing a merger without pilot approval despite constant pressures from rising gas prices and other factors. [30] Delta has indicated it will react to sky-high fuel prices even without a merger.[11]
DENVER -- Frontier Airlines sought bankruptcy protection Friday, the fourth carrier to do so in the past several weeks as exorbitant fuel prices eat into earnings and a weak U.S. economy keeps more people grounded.[36] Frontier Airlines shocked the industry with the sudden announcement it has filed for Chapter 11 bankruptcy protection. the fourth U.S. airline to do so in the past three weeks. The Denver-based carrier said the move was necessary, "following an unexpected attempt by its principal credit card processor to substantially increase a "holdback" of customer receipts, which threatened to severely impact Frontier's liquidity." Frontier stresses it intends to continue normal business operations today and throughout its reorganization process, including operating a full schedule of flights, provide employee wages and benefits without interruption, and pay off its suppliers. "Frontier is committed to delivering exceptional customer service and we intend to continue delivering on that promise with normal operations throughout our reorganization process," said Sean Menke, Frontier President and CEO. "To be clear, we filed for very different reasons than those of other recent carriers, and our customers and employees can be confident that we intend to keep on flying and providing outstanding service and products.[40]
"We felt that Frontier would be able to withstand the challenges confronting the U.S. airline industry, which include unprecedented and significant increases in the cost of jet fuel and the impact of the credit crisis in the financial markets, without seeking bankruptcy protection. Frontier has continued to perform relatively well in this difficult environment, and contrary to the trend, we have not seen a decrease in consumer demand, as demonstrated by our record traffic and revenue in March. "Unfortunately, our principal credit card processor, very recently and unexpectedly informed us that, beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets," he added. "This change in established practices would have represented a material change to our cash forecasts and business plan.[40]
Eagan-based Northwest (NYSE: NWA) decided to amend part the idea after other carriers, such as U.S. Airways, didn't follow suit. The company had first announced the measure Friday, citing rising fuels costs as a motivation in its decision.[41] The dire fuel cost situation was punctuated by low-fare carrier Southwest Airlines, which took the rare step of matching an increase put in place by the nation's biggest airlines. "It is all about fuel," Southwest spokesman Chris Mainz said. He characterized Southwest's increase as a "modest" one, ranging from $4 to $12 round trip.[1]
Soaring jet fuel prices, weakening demand and unrelenting competition from low-cost carriers are putting pressure on the airline industry to consolidate.[4]
Rising oil prices and weakening economy are the main reasons which have forced the airlines to go for a merger deal. They feel that if they want to survive this grave phase in the economy, merger is the only way out, experts said.[27] In a note to investors, analyst Daniel McKenzie wrote that while a long-awaited merger deal between the nation's No. 5 and No. 3 airlines has yet to be announced, the deal has a "98 percent probability" of getting done. He upgraded both companies to "outperform" from "neutral."[36]
The airlines want to announce the long-awaited merger next week, said the sources, who requested anonymity because the talks remain private.[4] The Detroit News said the airlines hope to announce the merger next week, according to the sources, who requested anonymity.[8]
For the past several days, news reports have speculated that a merger agreement could be announced as early as next week.[29] The agreement, which may be announced Monday, could be the catalyst for a merger between United Airlines and Continental Airlines, Inc., the report said.[23]
A person connected to the airline industry told me Friday he was hearing that Monday was the date for the Northwest-Delta merger announcement. Sunday morning, another person so connected says it's coming, sooner rather than later.[35] The merger, which may be announced next week, would create the world's largest airline.[25] A proposed merger with Northwest may be announced next week, the people said.[6] The merger includes a small premium for Northwest investors, three of the people said.[10]
Delta Chief Executive Officer Richard Anderson will run the combined carrier, and Northwest CEO Doug Steenland will likely be a board member, the people said.[6]
"All the labor groups understand that something has to happen." Delta and Northwest lost money in the October-December period after posting a profit in the previous two quarters following their exits from bankruptcy.[38] The realities have become increasingly apparent since Northwest and Delta emerged from bankruptcy last spring. At that time, oil was trading at $65 a barrel.[26] Northwest shares closed up 9 cents to $10.96; Delta shares were up 26 cents to $10.01 Friday.[36]
Delta jumped 84 cents, or 9.4 percent, to $9.75 at 4:15 p.m. in New York Stock Exchange composite trading.[27] Delta, in a company filing, said Thursday it expects to report a net loss in the first quarter. Its stock closed at $9.75, up 9.4 percent.[12] Delta officials have declined to comment on the latest reports of progress, but have acknowledged the company continues to examine industry consolidation.[11] On Thursday, Delta, in a company filing, said it expects to report a net loss in the first quarter.[29]
Delta spokeswoman Betsy Talton declined to comment other than to reiterate that the company's board committee that assesses possible mergers remains active.[38] Merger expert Dan Kolber says that may be easier said than done for Delta's CEO. KOLBER: The problem is Richard Anderson went out on a limb by guaranteeing that the seniority of his work force would not be negatively impacted without their consent. Anderson made his guarantee in late February in a memo to employees.[30]
A proposed merger with Northwest may be announced next week, according to the news service.[9] The Northwest pilots have been stuck on the sidelines. Last week, they signaled their unhappiness with the situation.[7] Northwest pilots were already balking at the plan Thursday, even before it was confirmed.[29]
A major hurdle to sealing a deal has been the integration of pilot seniority lists. [18] Seniority Negotiations Negotiations to create a combined seniority list may take months to complete, the people said.[10]
Northwest, the second-largest passenger carrier at Milwaukee's General Mitchell International Airport stated that it will work with the union to resolve the matter. [39] American Axle & Manufacturing Holdings Inc. offered the United Auto Workers union a new labor proposal on Friday as workers continue a six week strike.[31]
With four airline bankruptcies in the past few days, analysts were predicting anew that carriers would have to join forces. Frontier Airlines, which filed for bankruptcy Friday because its credit card processing company tightened terms, said it will keep operating flights. It runs three daily trips between Houston's Bush Intercontinental Airport and Denver. [1] Analysts have speculated that soaring fuel prices have kept the prospect of a potential deal alive.[11] With oil at $108 a barrel, a merger is also the most obvious way to reduce seating capacity and drive up ticket prices.[26]
SOURCES
1. Airlines skid to end of rough week | Chron.com - Houston Chronicle
2. MPR: Delta gaining support for merger from its pilots
3. NWA merger nearing takeoff | Freep.com | Detroit Free Press
4. Delta pilots OK contract changes that clear way for merger with Northwest
5. Delta, pilots reach deal on contract: report | U.S. | Reuters
6. Delta deal with pilots may open door to merger | Chron.com - Houston Chronicle
7. MPR: NWA pilots meet to discuss merger possibility
8. Delta Pilots OK Contract Change,Move Closer To Merger-Report
9. Delta and Its Pilots Said to Strike Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
10. Delta accord paves way for Northwest deal | theage.com.au
11. The Enquirer - Pilot unions to meet separately
12. Delta, pilots still wrangling over NWA deal | ajc.com
13. Editorial: Signs of trouble ahead for Northwest, Delta
14. Report: Delta, pilots reach tentative deal - Pacific Business News (Honolulu):
15. NWA pilots to discuss Delta merger options on Sunday
16. MPR: Delta pilots close to new deal clearing way for NWA merger
17. Report: Delta, NWA merger on again - Business First of Louisville:
18. Report: Delta, NWA merger on again - Jacksonville Business Journal:
19. Schaeffer's Investment Research - Schaeffer's Daily Market Blog: Breaking Option News, Commentary, & In-depth Analysis
20. Delta, Northwest Airlines move closer to merger | Freep.com | Detroit Free Press
21. Delta Oks Tentative Northwest Deal: Report - International Business Times -
22. AVIATION: Delta pilots meet; NWA pilots next | Freep.com | Detroit Free Press
23. Delta pilots tentatively approve merger - UPI.com
24. Delta pilots agree to new work package
25. wsbradio.com: News Delta, Pilots Reach Agreement
26. Delta makes offer to its pilots : Business News : Commercial Appeal
27. Delta-Northwest merger on track, Delta Pilots strike a deal - The Money Times
28. WKBT La Crosse, WI-NewsChannel 8, La Crosse Weather, La Crosse News, La Crosse SportsNorthwest pilot leaders due meet amid merger buzz
29. Report: Agreement could spur Delta merger
30. wabe NewsRoom
31. Analyst: High Crude Prices Advances Delta-Northwest Talks - International Business Times -
32. UPDATE 1-RESEARCH ALERT-Credit Suisse upgrades Delta, Northwest | Markets | Markets News | Reuters
33. High Crude Costs Make Airline Mergers Nearly Certain:Analyst
34. DOT might let Delta, Northwest combine transatlantic efforts - The Business Journal of the Greater Triad Area:
35. AIRLINE BIZ Blog | The Dallas Morning News
36. Business briefs
37. Airline sector falls as Frontier bankruptcy offsets upgrades of Delta, Northwest
38. Delta Air Lines and pilots closer to contract - Los Angeles Times
39. Northwest Airlines to pay $5.9 million settlement in employment lawsuit.
40. Aero-News Network: The Aviation and Aerospace World's Daily/Real-Time News and Information Service
41. NWA scraps part of minimum stay policy - Minneapolis / St. Paul Business Journal:
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