Will Delta Agree to Northwest's Offer Without Pilot Consent?

Over the last few days it has been reported that Northwest Airlines (NWA) has been in discussions with Delta Airlines (DAL) regarding moving forward with a merger without an agreement between the companies' respective pilots unions. As noted in previous updates, the tactic of obtaining pilot consent before reaching a formal merger agreement is an oddity, yet it appears to have been somewhat of a necessity in this particular case. Given DAL's position in the industry -- both in terms of longevity and market standing -- the pilot seniority issue is more critical in this deal than perhaps any airline deal in the past. The sheer number of DAL pilots that will be affected by this potential combination makes this deal unique and not in a positive sense.

Thus, attempts to move forward with this transaction without a formal pilots agreement in place seem to be misguided and, in many ways, an act of desperation on NWA's part. Perhaps the concept is to forcibly motivate the pilots into an agreement via reaching a formal merger agreement in the near future. Unfortunately, the original tactic of obtaining pilot consent beforehand has essentially resulted in what appears to be -- at least at this juncture -- an unreasonable impasse.

Again, this publication feels that the pilots can eventually reach a mutually agreeable settlement (as occurs in virtually every airline transaction), but the concept that a formal merger agreement will expedite this is very much flawed. In fact, it could very well result in the opposite outcome desired by the companies.

At this point, it is not believed that DAL will agree to a formal merger agreement with NWA, regardless of terms, while its pilots union remains unhappy with the seniority list provisions. Until the pilots can work out the issue on their own, as originally planned, DAL is much better off rejecting any offer NWA proposes.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.

Comments

[Nakedputwriter:]

The pilots were UNABLE to work out the issue on their own. The issue has NOT been worked out successfully in "virtually every airline transaction". The market disagrees with your assertion that DAL is better off rejecting "any" offer NWA proposes. Simply base seniority in the new company exactly as it was in the separate entities. i.e. if you as a pilot were in the 51.774 percentile at Delta, that is your place in the merged company.

2008 Apr 02 07:48 AM

[Charbaby:]

An agreement couldn't be reached because the NW negotiators are very senior pilots and wanted to take the top thousand or so seniority slots for themselves and then start the merging of seniority lists. They also wanted to put several thousand Delta new hires on the bottom beneath their guys also. Nakedputwriter is rational about the theme...if you are 86 per cent on your seniority list today, then when the lists are merged, you should be 86 per cent up on the new list. THAT is the fair way! When progression in your job is based on your date-of-hire and nothing else, it is the single most important factor and must be fought for. Ask US Air how their merger is going!...point made!

2008 Apr 02 08:28 AM

[delta Dave:]

That integration methodology was already rejected by NWA merger cmtee., also several other 'fair' systems, they stick to date of hire methodology- and that is unacceptable to DAL pilots.

2008 Apr 02 08:28 AM

[Netwidt:]

Northwest needs Delta far more than Delta needs Northwest. At some point Delta management needs to approach NWA with a seniority list and say, "You want a deal, here it is. Take it or leave it." I believe the majority of the rank and file NWA pilots would recognize that accepting the offer would be in their best interest. If not, Delta can buy the pieces of Northwest that they would like in a couple of years from what's left of NWA.

2008 Apr 02 08:50 AM

[Simple Logic:]

Even relative seniority would be a windfall for the NWA pilots. Both sides must consider what their company brings to the table in regards to fleet, domiciles, contract, etc... You then negotiate with what you bring to the table. 60 widebodies at NWA cannot hold weight against the 120 widebodies at DAL. NWA's 100 or so DC9's that were built in the 1960's are prime targets for parking jets in the recession. That means furloughs. Those furlolughs should all be NWA pilots instead of DAL pilots. NWA brings pilot domiciles in Detroit, Minneapolis and Memphis, with a very small base in Seattle. Whereas DAL brings Atlanta, Salt Lake City, Cincinnati, New York and Los Angeles. DAL's pilot contract is much more lucrative than that of NWA pilots. A DAL777 Captain earns more than a NWA747 Captain.

In short, DAL pilots have far greater career expectations than their counterparts at NWA. A relative seniority integration would result in a loss in pay and schedule in the near and long term for DAL pilots, not to mention the furlough of DAL pilot families as a result of parking the archaic, gas guzzling NWA DC9's. In contrast, the NWA pilots would achieve vast increases in pay, schedule, benefits, job security and quality of life. In fact, that is why most prospective airline pilots apply first to Delta, only accepting a job at NWA if they do not have an option at DAL, AMR, UAL or CAL.

2008 Apr 02 08:57 AM

[snowtown:]

Well, The DAL boys sure got up early this morning. The truth is that none of these DAL posters know what really happened during negotiations, nor do I. I believe both companies bring much to the table as a combined airline. We as pilot groups don't bring anything. We must remember that we are just hourly employees, not cheerleaders for Anderson and Steenland. This merger will take place if the hedge funds that hold percentages of DAL and NWA stock want to reap their profit, and they'll want to do this before a recession. Because of this, when the merger occurs, both pilot groups will be faced with binding arbitration. This generally makes only one pilot happy; Seniority #1. Let's come to a reasonable solution.

2008 Apr 02 09:32 AM

[BADBOB:]

NWA brings very little to the table. Look at the current comments and none a favoring NWA for good reason.
NWA has in the past been militant pilot group and it appears that hasn't changed.
It is no suprise that they want a deal know but have appeared to cut off there nose to spite their face. The orginal offer would have given them (NWA) about a 30% pay increase and better work rules.
All this in addition to a far better fleet of aircraft and still they wanted to command the seniority list.
DAL is better off without them!

2008 Apr 02 09:41 AM

[Astro9007:]

Hey Snowtown - I doubt you were involved in the negotiations either, so YOU also don't know what happened. Suffice to say that no agreement in seniority integration could be reached, hence no merger. DAL management has already said they would not go through with an agreement that did not protect the seniority of it's employees. There will be no merger unless that condition is met.

2008 Apr 02 10:02 AM

[B757blaine:]

The persistent DAL postings claiming that the NWA pilot group negotiators demanded pure DOH methodology are false! Check with your MEC reps, you'll find out that both parties were very close in the end. The DAL pilot group wanted a more favorable ratio in the SLI method than that which would calculate out to "relative seniority". This favorable ratio would have put the NWA pilots holding the bottom 1000 or so spots on the new combined list. To be truly fair, a relative seniority system would have pilots from both lists slotted together at or near the bottom. Check with your reps. The DAL team felt because the NWA pilots would receive greater raises in the first year to achieve pay parity---that the DAL pilots deserved an advantage on the ratios for determining the overall list. NWA pilots simply disagreed. Now, if Anderson decides to pull the trigger on this combo without the pilots, it will go to arbitration as per ALPA policy. Respectfully, you will have to convince a neutral of your arguments. This could be a fantastic combination if done the right way. Good luck to all, but everyone should try to avoid the greed and fear that always accompany these mergers.

2008 Apr 02 10:04 AM

[K Edwards:]

This article is one more example of the folks who write for Seeking Alpha not really understanding the airline business. "Again, this publication feels that the pilots can eventually reach a mutually agreeable settlement (as occurs in virtually every airline transaction)"...This one sentence underscores that the author really lacks an understanding of the airline business and it's labor problems.

Mr. Author, who ever you are, you should spend a bit of time researching what you write about. Find out about the mess of the red/green/blue book stuff at NWA or the lawsuits that existed for over 23 years after Lorenzo's Continental, or any of the other events at airlines which still keep pilots divided.

NWA & DAL are smart to attempt to hammer this out early after so many airline merger train-wrecks. Merging is ultimately a management decision and if NWA & DAL wanted to do it tomorrow, they could. Perhaps management finds VALUE in settling this potentially nuclear labor issue. We all know management is in place to run a business and improve shareholder value, not make labor happy. If making labor content improves the business, then perhaps it makes sense to wait this out. I don't know

Seeking Alpha should find some pros or consult with the likes of Mike Boyd. Writing like this diminishes my view of all contributors of Seeking Alpha.

2008 Apr 02 10:18 AM

[dateofhire:]

Hey folks, these mergers will happen again in ? years. That given, regardless of where you are now, wouldn't it be prudent to consider that if not DOH you may well be passing your future Captain [driving out of your drive way] as you leave on your next trip. He or she is the kid across the street getting their training wheels removed from their first bike. Forget the COMPANY you work for, they have already forgotten you----and remember the guy sitting next to you, [whether it be left or right] is the only person who can help you fly through bad weather in the dark of night, pick up that missed radio call for you or tell a joke to keep the long hours in the cockpit from being miserable. That person and how they feel about themselves and you is your best ally--Not a Company CEO or the name brand you fly under.

2008 Apr 02 10:33 AM

[snowtown:]

My dear Covered Caller. And you believe Anderson?

2008 Apr 02 11:24 AM

[cropter:]

dateofhire. quick question for you. I guess with that logic, you're comfortable combining the NW list with mesaba's and stepping aside while the RJ first officer ($40/hr) that was hired the day before you slips into your DC-9 Captain seat ($120/hr). I absolutely understand a NWA pilots desire to promote DOH, but I think what Delta management understands, is that Delta pilots have given alot in the past 4 years. We're done. At some point, you can't get any more concessions. We are at that point. I would love to improve the circumstances of the NW pilots, just not at my expense.

2008 Apr 02 11:29 AM

[cropter:]

Simple Logic. You are exactly right. The only thing I would add is this: Delta pilots sacrificed the pension. It was very painful. But, in return, thousands of our most senior pilots retired. If NW pilots are willing to make a similar sacrifice and motivate their senior pilots to leave, the relative seniority might make more sense. But, unless NWA MEC can do a better job of communicating, it sounds like they are either unaware of the pension sacrifice, or simply wanting to have their cake and eat it, too. When I talk to others flying the line at Delta, I haven't heard anyone point to even one benefit that Delta pilots would get from a combination with NW. In an atmosphere of spiraling wage and work rule concessions, we're not eager for more.

2008 Apr 02 11:46 AM

[dateofhire:]

Cropter, didn't mean to make it sound easy--it isn't. We have all given and some more than others. End of the day whether it be fences, or just freezing positions until the economy makes an up swing and the synergies can acutally happen to make airlines more efficient so there is growth. I guess my thoughts are more like let's quit fighting each other, everybody take the good with the bad, get together and demand that these "management teams" that are so damn special they warrant million dollar parachutes just to stay on in their positions run the airline like a business instead of a personal ATM at the pilot's expense. Just remember who the enemy is---not the guy next to you who is just trying to feed his family and preserve himself some dignity. I am not asking everyone to sing Cum By Ya and get all groovy---I feel pretty militant, lost my pension, vacation, sick, I commute to a city I hate and lost in the first merger with the DOH program. I have been backing up for YEARS. What I have realized though is that as long as we are fighting each other Management is free to play golf all day. There needs to be a big fight---just not with your fellow pilots, it needs to go upstairs.

2008 Apr 02 05:31 PM

[Independent...:]

Another question is: How are you going to carry so many share holders into the new company? In another words: Shares awarded to employees before they emerged from Chapter 11, shares awarded to many institutions who had claims against NWA & DELTA? Some institutions and individuals are artificially creating a downward pressure on NWA & DAL stock prices using many leverages including oil. Like the value of the DOLLAR. You pay somebody back their debts with low interest rates. You pay these share holders with NWA & DAL stocks with very low price per share. What can you do about it? If you play it well, you will win by long, short, straddle or accumulating your share and enjoy your your rewards in the near future. If you don't play right or miss the game or the boat, you sigh and cry....TWA was a big example before people forget them not long ago. Senority is based on time. Anybody who plays with time only lose time. There's a timeline for everything.

2008 Apr 02 09:21 PM

[User 172090:]

Charbaby, Sorry-you are misinformed about who and what the NW negotiators position was. I can see how that misinformation might concern DAL pilots, though. I hope the DAL negotiators and NW negotiators continue to work together to find a mutually acceptable list and that all parties recognize doing so COULD make for a great airline.

2008 Apr 02 10:57 PM

[Independent...:]

Nobody likes a company with unhappy employees. That's a fact. At the same time, everybody knows that labor groups can not agree with each other when their own interest is at the issue, like their own seniority. That's also a fact. Top executives know that. Their consultants who are ex-airline execs for sure know that very well. So why wait till they say: We give you guys a lot time. We can not wait forever. Here's our deal. Take it or leave it.
Some party even rejected arbitration, what else can we do?
Here comes the deal at a good price.

2008 Apr 03 03:35 AM

[nickpilotmba:]

Cropter -- Did not Northwest employees give as liberally in reorganization as Delta's? I believe that the sacrifices are comparable, albeit different. In Delta's case, the pilots fed the "old" guys to the fire by sacrificing pension benefits to retain hourly pay rates and work rules. In Northwest's case, the pilots ate their young by working to retain frozen pension benefits via the sacrifice of hourly pay and work rules.

Nobody wants to give more. Ignoring the true brotherhood of our organized profession, I would gladly terminate our pension (from which I will receive ZERO benefit) to raise my personal standard of living. But, rather than focusing on harming some particular subset of our group I would prefer to find benefits for all to pursue. Company stability, a steady mix of ages throughout the seniority list to ensure consistent advancement, and other issues far too complex to discuss adequately in a few paragraphs are part of a picture bigger than the soundbites being discussed online and in some union communications.

The bottom line is this - this deal may or may not happen. To a great extent, it does not matter what we employees think. The "money" people behind the process will make a final decision with our opinions as only one criterion among many. Our respective representatives must make delicate judgement calls to ensure that benefits are maximized for us while minimizing the negatives.

2008 Apr 03 11:33 PM

[User 172757:]

Today is today, what has happened in the past is gone, over. No furloughs, no fences(that means former Republic Green-20 yrs., Red book), no seat loss, all within 1% of where they were coming in wasn't good enough. 30 of the top 1,500 and all of the bottom 2,000 doesn't sound too good from the DAL side especially when all DC-9's(89) are scheduled to be parked by 12/31/09 per NW plan. Arbritration is only for the unimaginative or inflexible. When pay raises, equity and a secure airline are being offered with 2 Bln on the table,from mgmt, don't be greedy or your expectations of that 747 seat will vanish like the DC-9's as you are sold off in pieces.

2008 Apr 04 12:22 AM

[TryGoldenRule:]

Some Quotes to start: “Do unto others as you would have others do unto you” – THE King; “Can’t we all just get along?!” – Rodney King; “Don’t confuse me with the facts, my mind’s made up!” – Idiototis; “When the going gets tough, the tough get going.” – Vince Lombardi; “Those who fail to learn the lessons of history, are doomed to repeat them.” – E. Burke; “Methinks yon Cassius hath a lean and hungry look.” Shakespeare; “Half of being smart is knowing what you’re dumb at.” – Grand Dad. Looks like we have a real “venting forum” here, complete with enough hyperbole, misinformation, disinformation, recklessness, blustering, avarice, fear, posturing and overblown egos and expectations to go around. Rather than focus on all these emotions – let’s zero in on: EXPECTATIONS… wherein lies much of the problem. Reasonable vs unreasonable; his vs mine; them vs us… enough discord to doom the deal. Some get it, some don’t: IF THEY SUCCEED IN DIVIDING US, THEY HAVE CONQUERED THEIR STRONGEST FOE! FACT: Mr. Richard Anderson came to Atlanta to hand DAL the highly coveted international – Read: Pacific - Routes & Authority of NWA… period! These routes & the authority are second-to-none in this industry, and he knows it. The growth, gain and money is in the Pacific! This is the crown jewel of this merger – so disabuse yourself of any notion as to who needs whom. If Anderson doesn’t succeed – he’s gone! This was all set into motion long ago, and if you think otherwise, you’re mistaken. Steenland stands to pocket in excess of $16 million if this deal is signed and sealed before year’s end, and he and Anderson (who have worked together for more than 20 years) know what is at stake in this poker game. Your career and your “expectations” are not on their list – except as they can manipulate you as benefits their end game. Remember that! The DAL negotiators’ 12 to 7 ratio and intractability may have doomed the deal and are untenable. To clear the air: I am a 29 year pilot, B747 Captain at NW and I’ll put my W2 against any DAL Captain’s right now… The first number is 3xx,xxx! And I certainly will put my total pension & benefit package up against any DAL pilot: The first number is 2x,xxx/per month! Everyone, indeed, gave and got in the recent “shakeout”! What we need now is some, yet unseen, ALPA leadership that will DICTATE such things as: One Pay Rate for all Widebody Captains & F/O’s; one for large domestic planes/positions and one for smaller domestic planes/positions. Start thinking outside the box; stop fighting among one another and get back to quote number one, above! For once we can be in the driver’s seat – if we are smart enough to get it together and work this out! I hope to fly with you one day, whichever side of the fence you are on.

2008 Apr 04 06:33 AM

[BUCK AT NWA:]

First and foremost my name is Buck and I am a FO on the A320 for NWA. It would be nice to know who all you are and who we all work for so we can address eachother by name. We are all professional and all have paid their dues to get where were at today, be it NWA or DAL.
If I have learned one thing in all that we have gone through over the past years that would be that MGT. in both airlines have succeeded in dividing the pilot group over and over again.
Mr. Steenland and Mr.Anderson are business people and have one thing on there mind and that is to make money regardless of how it effects us as pilots.
If we dont come together with a fair and equitable solution that is good for all, it will be forced on us in the end.
Lets stop the fighting and put our forces together and maybe we can make a difference, God knows that we (dal or nwa) cant fight mgt on our own, look what they did to both groups the last six years. If anyone has a better solution that is cival and fair and not greedy please step up and offer it.
By simply stating that DAL or NWA has more to offer than the other one is not going to work in my opinion,just look at both stock prices and that will tell you why all this is going on. Name calling and putting the other group down is only going to delay our progress.
DAL pilots I respect you and know you are professionals in your trade, I can only hope you feel the same toward all the NWA pilots and all the other pilots in other airlines that have also made great sacrifices over the years. This is not what any of us signed up for but we are here so lets get together and fix it.

2008 Apr 04 09:17 AM

[C-135 Backer:]

What exactly does it mean "that Delta management will not accept any deal that does not protect employee seniority?" Does that mean the #1 NW guy is stapled after the last numbered Delta guy?

2008 Apr 04 03:09 PM

[Independent...:]

After reading the heartfelt intelligent comments above, where we touched upon an important aspect , that is: Leadership in the industry and in unions are being questioned here objectively. How much can you count on them? They have to demonstrate capability by creating a legend or a mess. While they are doing that, employees should ask themselves as well: A legacy or a tragedy? Smart comments made here shows your capability to avoid bad decisions as you are proving on every flight you worked successfully. Why not take a look at Mall of America? The Teachers' Union invested together in this Giant successful project. Can you match up?

2008 Apr 05 12:27 AM

[FFLyerWorld:]

It is certainly mighty quiet out there regarding merger/options being approached. I read on another blog that AA was talking to NWA and that DAL may or may not be interested in pursuing anything at this point. With escalating fuel prices and recessionary climate here - should make for a very interesting next few weeks. Fasten Your Seatbelts! Thoughts??

2008 Apr 06 12:35 PM

[Independent...:]

Check out Today's FT. It's back to the table again between NWA & DAL. Very seriously. This means turbulence. You are right. The question again is: What can we do to benefit ourselves? Under the leadership of Ex-Exec from Boeing--Mr. Allan Mutally, stock of Ford is going to double next year. Yes, I know, UAW is complaining that he got paid too much, which is also true....while some people also say some union officers got paid too much too and did not produce much benefits for members either.... Again, it's about leadership again. Leadership at all levels.

2008 Apr 06 10:43 PM

[Robert Cassidy:]

Some excellent points have been displayed ...The bankers and creditors demand that a fully globalized airline be formed from DAL and NWA components ...If the pilots can't reach a rational agreement...The combo will be done by some other means ...eg a sale/ transfer of the additional PAC routes to Delta...or a massive furlough prior to a conventional merger (DC-9s...retired...150... pilots - gone ...etc.)
The only question is precisely what will happen - and how soon....With a $ billion infusion being dangled by KLM/AF...the financiers will not accept "no' for an answer
The ALPA should cooperate quickly and reasonably , lest the pilots take a severe hammering ...The Industry is in a state of siege
There is very little latitude for union power posturing

2008 Apr 07 01:21 PM

[Independent...:]

Historically, there's Pan Am model: "Here comes the De--l."
Pan Am was chopped and employees were offered an opportunity to go through a rehiring process by Delta. Not many got hired. Many profitable routes were selected.
Next is TWA model. TWA had to declare bankruptcy to get DOJ & DOT's approvals; and only accept American as the acceptable bidder. You probably remember what happened to TWA people in the end.
Then the recent Merger of American West & US Airways. A lot went wrong due to a rush deal. Industry insiders have been criticizing the problems. Not many people are happy about the deal except the ambitious Mr. Doug Parker who was an ex-Vice President of NWA and tried to bid Delta and failed.
Across the ocean, as reflected by the previous comment that Air France & KLM merged but kept their separate operation. Many people think this might be a good way to end this deal between NWA & DAL. But not everybody wants to end it so easy and so soon. Reason? Attorneys, consultants, senior management and board members are paid by the time they serve. There's no benefit to rush unless some dramatic event occurs....
Why rush to pay all you share-holders at $26 or $29 a share? Let's think about it when the dollar is cheaper and before the stock price change directions.... Imagine all those guys wake up and do what United Airlines' emploees used to do and control 60% of the total stocks and hire or fire their CEO's, oops, NWA used to have FOUR board members from their employee groups...No longer.

2008 Apr 07 10:28 PM

[Flyer1:]

Again, this publication feels that the pilots can eventually reach a mutually agreeable settlement (as occurs in virtually every airline transaction), but the concept that a formal merger agreement will expedite this is very much flawed. In fact, it could very well result in the opposite outcome desired by the companies."

This is the mentality of NW's CEO and BOD that employees have had to stomach for the last 5 years. It is a poisonous, amateurish display of lack of skill.

2008 Apr 13 06:01 PM