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Delta-Northwest combination in ‘jeopardy’?

An impasse among pilot negotiators over blending seniority lists has put a $20 billion deal to combine Delta Air Lines Inc. and Northwest Airlines Corp. in “serious jeopardy.”
/ Source: The Associated Press

An impasse among pilot negotiators over determining seniority put a $20 billion deal to combine Delta Air Lines Inc. and Northwest Airlines Corp. in “serious jeopardy” as the companies’ boards prepared to meet Wednesday, two people close to the talks told The Associated Press.

The people said the pilots unions have agreed on a comprehensive joint contract, but they are unable to agree to how seniority for the 12,000 pilots would work under a combined carrier. The people asked not to be named because of the sensitive stage of the talks.

They said late Tuesday that the pilot talks were expected to continue Wednesday, but if no agreement is reached, a deal on a combination of the two airlines would be in real trouble.

The boards of both companies were expected to vote on a combination agreement Wednesday if a pilot deal is in place by then. Otherwise, they were expected to just get an update on the merger talks, three people close to the talks said.

One of the officials close to the talks said Northwest’s board might only meet by teleconference or, if things fall apart, not meet at all.

A Delta spokeswoman declined to comment on consolidation issues involving the carrier. Delta has previously said it was considering a possible consolidation transaction, but has not commented beyond that.

Greg Rizzuto, a spokesman for the Northwest pilots union, said Wednesday that while most of the economic and contractual issues between the unions have been worked out, protecting the seniority of Northwest pilots remains a problem.

“We want any seniority integration to be fair to pilots at the top, the middle and the bottom of the list,” he said. “That is what is required for the success and the growth of any airline.”

Talk of airline consolidation has heightened in recent months amid persistently high fuel prices, which are eating away at the industry’s bottom line.

A combination of Atlanta-based Delta and Eagan, Minn.-based Northwest would create the world’s largest airline in terms of traffic. That’s before any divestitures regulators might require them to make if they combine.

There also has been speculation about a possible combination of Chicago-based UAL Corp.’s United Airlines and Houston-based Continental Airlines Inc., which would be a bigger airline than Delta-Northwest in terms of traffic.

The clock is ticking to get any deals accomplished quickly, some observers say. Industry observers believe a combination has a better chance of surmounting the considerable political and regulatory hurdles under the current administration than under President Bush’s successor.

Delta and Northwest don’t need a labor agreement between their pilots unions before announcing a combination, but having one in place now could help them speed up the integration of the two carriers down the line.

One of the people close to the talks said Tuesday night that a small group of Northwest seniority list pilot negotiators want thousands of young Delta pilots to go to the bottom of the combined seniority list as part of agreeing to a deal on seniority. The person said that was a major hang-up.

But Rizzuto said Northwest’s pilots union is united, and he noted that a pilot’s career is tied to his or her seniority ranking. So a “short-time economic benefit is not worth sacrificing the possibility of advancement,” he said. “All seniority lists need to take into account pilots that are retiring and the advancement of those other pilots.”

Northwest’s pilots tend to be older than Delta pilots because many senior Delta pilots retired before Delta terminated its pilots defined benefit pension plan during bankruptcy. That didn’t happen during Northwest’s bankruptcy because it froze its pensions — so pilots still got what they had earned, although their pensions stopped growing.

The pilots from both companies have agreed to a significant equity stake for the pilots if a merger goes through, including raises for some, one of the people close to the talks said. However, a second person close to the talks said it was not clear that the equity issue had been resolved.

Much of the terms of how the combined carriers would operate had been resolved as of Tuesday, two people close to the talks said. The combined carrier would be based in Atlanta, would be called Delta and Delta’s chief executive, Richard Anderson, would be head of the new company, the people said.

It remained unclear what role Northwest’s CEO, Doug Steenland, would play in the combined carrier, the people said. A joint Delta-Northwest would maintain a substantial presence in Minneapolis and there would be no furloughs for front-line U.S. employees, the people said. The two airlines have roughly 85,000 total employees.