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Delta, Northwest pilots may kill merger plan

/ Source: The Associated Press

Delta Air Lines’ pilots union has told company executives it can’t agree on seniority issues with its counterpart at Northwest Airlines, raising serious doubts about the prospect of a combination of the two companies as Delta prepares to overhaul its operations.

The disclosure was made Monday afternoon in a letter from the head of the pilots union at Delta, Lee Moak, to rank-and-file Delta pilots.

Moak said the union will not “chase a transaction for transaction’s sake.”

The letter does not mention Northwest, but describes the union that Delta’s pilots had been negotiating with as the only one they were focused on talking with. Multiple officials close to the talks have said in recent months that the other company was Northwest Airlines Corp.

The letter talks about the discussions with the other carrier in the past tense, suggesting at least for now there won’t be further talks.

The two carriers don’t need a pilot seniority integration deal in advance to move forward with a combination, but Delta Air Lines Inc. executives have said they would not move forward with any combination unless the seniority of their employees was protected.

A Delta-Northwest combination deal could move forward without a pilot seniority agreement, but that would be up to the boards of the two companies.

At least one airline analyst, Calyon Securities’ Ray Neidl, sounded doubtful that will happen, at least in the near term.

“Northwest is an attractive target for a number of airlines. Delta probably would have been the best fit,” Neidl said. “At this point, now I’m not sure if anybody is willing to pull the trigger in this presidential election year.”

Seniority is important for pilots because those at the top of the list get first choice on vacations, the best routes and the bigger planes that they get paid more for flying. It’s also the reason pilots don’t often leave to go work for another airline.

Moak said that this past weekend, he told union leaders he had received a communication from union leaders at the other carrier.

Moak said the other carrier stated that it was only willing to discuss its latest proposal, which Delta’s pilots union believes would jeopardize the seniority and career expectations of Delta pilots.

Moak did not detail the other carrier’s proposal. Several people close to the talks have said Northwest pilot union negotiators had previously proposed putting thousands of younger Delta pilots at the bottom of the merged company’s pilot seniority list.

“I declined and informed the MEC and Delta’s senior executives that the two MECs were unable to reach an agreement on an acceptable seniority list integration,” Moak wrote.

Moak suggested Delta pilot leaders are frustrated that “the results of their efforts will never be actualized.”

Dave Stevens, head of the pilots union at Eagan, Minn.-based Northwest, said he believes “an equitable method exists to combine a seniority list and to achieve a consolidation that is mutually beneficial to both pilot groups.”

Delta spokeswoman Betsy Talton said in an e-mail to The Associated Press late Monday that the company is currently not providing updates on a strategic review by its board of directors, which the company has previously said could include a possible consolidation transaction. She said a special committee of the board remains active. Northwest spokeswoman Tammy Lee declined to comment.

In his letter, Moak said it is uncertain what will happen next for Delta with oil prices recently having cracked $111 a barrel.

“In broad terms, Delta’s senior executive team and the Delta board of directors decide the direction of the company, and that direction may or may not include consolidation,” Moak said.

Delta plans to announce Tuesday an overhaul to its business plan to deal with soaring fuel prices. CEO Richard Anderson said in a message to employees Friday that the changes will be “comprehensive,” but he did not provide details, including whether the plan will include job cuts.

Delta, the nation’s third-largest carrier, is based in Atlanta.

A combination of Delta and Northwest, which at one point had been projected to be worth $20 billion, would create the world’s largest airline in terms of traffic.

Not too long ago, Delta and Northwest seemed all but certain to announce a combination. But the impasse over seniority involving the pilots unions became a major sticking point.

People close to the Delta-Northwest talks have said the pilots unions had agreed on a comprehensive joint contract, a significant equity stake for pilots and big pay raises for some, but had not been able to agree to how seniority for the 12,000 pilots would work under a combined carrier.

Delta shares fell 37 cents, or 3.9 percent, to $9.23 in trading Monday while Northwest shares lost 59 cents, or 6.2 percent, to $8.92.