NWA, Delta trying to beat ticking clock
By LIZ FEDOR, Star Tribune

April 7, 2008

Northwest Airlines and Delta Air Lines executives recognize
time is growing short to propose a merger that could win
regulatory approval before President Bush leaves office, and
they now are seriously discussing multiple merger options.

Some analysts view the airlines as likely to move quickly,
because of that narrowing political window and the threat of
growing unrest among many shareholders who are demanding
consolidation.

A person familiar with the talks said Monday that the
airlines could elect to follow a traditional path,
announcing a merger and leaving the integration of their
union pilot ranks until after the combination receives
federal approval.

Delta CEO Richard Anderson, who would lead the merged
carrier, and other executives wanted to secure a pilot
agreement in advance of a deal, partly because the new
airline could avoid a protracted and bitter dispute among
the two pilot groups.

If the pilot groups fail to negotiate a seniority deal after
a merger takes effect, the Air Line Pilots Association
policy allows arbitration to be triggered to resolve the
dispute.

Another possible merger strategy involves moving ahead with
what some have called a "lite merger" in which there would
be only one set of top executives, but Delta and Northwest
would continue to operate separately.

However, that approach would be strictly an interim step
because it would achieve limited efficiencies. In addition,
current pilot labor contracts at both airlines "require that
the operations of the airlines be integrated shortly after
the negotiation of a combined collective bargaining
agreement and seniority integration," said a second source
familiar with the talks.

Third option floated

A third option involves the executives informing the two
pilot groups that they intend to proceed with a merger, but
they want the pilots to make one last attempt at reaching a
deal on seniority.

The two airlines have had a merger agreement ready since
February, with the combined company to be based in Atlanta.

In February, the airlines executives also negotiated a
four-year labor deal with the two pilot groups that called
for double-digit wage increases. That new contract was
designed to be an inducement for pilots to negotiate the
integrated seniority list that would allow the merged
airline to combine fleets from the outset. So far, the two
pilot groups have failed to reach an agreement.

Now, a news source said, "The one wild card is whether or
not you can still achieve enough synergies without having a
pilot deal up front."

Talks between the two pilot groups might begin again this
week.

Dave Stevens, Northwest pilots union chairman, and Monty
Montgomery, the union's vice chairman, met with U.S. Rep.
Jim Oberstar, D-Minn., on Monday in Minneapolis. Oberstar
opposes a merger because of competition issues. The pilots
shared some merger concerns with Oberstar that they have
heard from multiple Northwest employees, said a source
familiar with the meeting. The Northwest pilots' leadership
previously said it could support a merger under the right
circumstances.

This spring, the Northwest and Delta boards and executives
have reached a stage in which prospects for the airline
industry have grown tougher as the U.S. economy stagnates
and fuel prices remain at record highs.

In recent weeks, merger discussions between the two airlines
have occurred in "fits and starts," one source said, because
executives had to focus their attention on capacity cutbacks
intended to help Delta and Northwest remain viable on their
own in the face of rising fuel prices.

J. Steven Hart, an antitrust attorney who worked in the
Reagan administration, said in an interview that the
airlines should allow the Department of Justice enough time
to complete a merger review by the end of November. He
argues that regulators will need at least six months to
assess the combination, which he believes would be approved
because the airlines' domestic networks are complementary.

Hart views presidential candidates Hillary Clinton, John
McCain and Barack Obama as "less likely to be favorable
towards airline mergers" than the Bush administration.

'Up against a deadline'

Dan McKenzie, an analyst for Credit Suisse, said that if
Delta's board dallies much longer, some shareholders are
prepared to mount an effort to replace board members with
those who would more aggressively move ahead on a merger.

He said that the window for proposing a merger should be
measured in days rather than weeks.

"We are coming up against a deadline," McKenzie said.