fireman0174

US airlines consolidation may not be quick fix
By Justin Baer in New York (Financial Times)
Sunday Jan 20 2008 16:50

Consolidation in the US airlines industry may eventually achieve everything its proponents say, from slashing expenses to helping domestic carriers compete with their global rivals, but it could take several years of operational glitches and tough negotiations with organised labour before any merger can be called a success.

Airlines executives, who have touted the merits of takeovers as their best hope for enduring record fuel costs and a slowing US economy, look to the most recent deal - America West's 2005 merger with US Airways.

But the combination, which stitched together what industry insiders considered a second-tier airline with a legacy carrier under bankruptcy protection and near the brink of liquidation, has been plagued by reservation-system problems, poor on-time arrival performance and a still-simmering conflict between the two companies' pilots unions.

US Airways and America West provide a classic example of what can go wrong, said Bill Swelbar, a research engineer at Massachusetts Institute of Technology's International Center for Air Transportation.

Delta Air Lines (NYSE: DAL) is now in separate merger talks with both Northwest Airlines (NASDAQ: NWAC) and United Airlines, and Continental Airlines (NYSE: CAL) executives said last week they would move aggressively should the industry consolidate around them. United in turn is weighing whether to reignite negotiations with Continental if its discussions with Delta fail to end in an agreement, people familiar with the carrier's plans said.

Even if the carriers strike a deal or two and win the approval from antitrust regulators and labour leaders to proceed, they will face the daunting task of combining two complex companies. However, Doug Parker, US Airway's current chief executive and the architect of the merger, remains unapologetic. "I'd do it again in a second," he said in a recent interview.

"Anyone who goes through a merger is going to have those same difficulties. There are a myriad of systems, and putting those together is very, very hard. It's the right thing to do."

Despite trailing its five fellow network carriers in market capitalisation, US Airways is poised to report a 2007 profit of about $418m, according to analysts. That is more than United is expected to earn and within $10m of Delta's estimated total, analysts predict.

The combined company has rebounded from a brutal stretch in the first six months of 2007, when it finished last among the top domestic carriers in on-time performance, according to a US Department study. By November, US Airways' ranking had climbed to ninth.

But, unable to agree on how to rank the combined workforce by seniority, which helps determine pilots' pay and choice of aircraft they fly, America West and the old US Airways haven't merged their unions. Though the combined company has continued to operate with two separate pilots' groups, their dispute undermines employee morale and makes it difficult for management to negotiate new contracts.

Mr Parker said he remains optimistic the America West and US Airways pilots will merge their members into one union. Besides, say the advocates of consolidation, what has made this dispute unusually trying has been the differences in average tenures of the US Airways pilots and the smaller America West.

Delta, United, Continental and Northwest pilots may not confront the same challenges.

Nevertheless, airlines CEOs may need to wait a few years before their companies are integrated completely, Mr Parker said.


http://us.ft.com/ftgateway/superpage...d=yahoofinance

iahflyr

Yes, mergers can be a good thing for the industry.

A merger between a company that was about to be liquidated, had gone through bankruptcy twice, and was losing billions of dollars, combined with an airline that was only making a few million dollars a quarter leads to a company that made $418 million, more than other legacy carriers, with record high fuel prices. A merger can create a much stronger company between the two combined carriers. And when airlines are making money, that is good for the pilots (just ask guys at FedEx, UPS, and Southwest).

Exactly! The US Air/America West merger was really tough on some pilots because the pilot seniority lists were on two completely opposite ends of the spectrum. But for everyone who got screwed, someone made out well.
The pilot seniority lists at Delta, United, Continental, and Northwest are all fairly similar. That could lead to a fair and equitable merger (plus these airlines are all ALPA, so no staple, and DOH may work out great).


I have said it before... I am hoping mergers happen. I am rooting for it. The title of this article is correct. US airline consolidation may not be a quick fix, it is a long term fix!! If you are only going to be in this industry for the next 2-3 years, a merger will probably not help you. But if you plan on being in this industry for the next 10, 20, 30, or 40 years, having fewer airlines with less cutthroat competition, and less chance of any single airline closing its doors, our careers as pilots can be improved greatly.

I am rooting for mergers. I hope they happen. Otherwise we have to look forward to cutthroat competition, wage concessions, and a struggling industry for years to come. Lets fix many problems with our industry NOW. Lets have mergers.

Shrek

You must be a senior CAL pilot then?

luv757

I hope to hell not! That sounds like management (which I hope he isn't either!)

fireman0174

Right on Glenn.

Bucking Bar

The top 2,000 pilots at Delta took an early retirement during the bankruptcy. This resulted in a young seniority list at Delta. I'm guessing the average pilot is in their early 40's and there are very few over 53 year old pilots. Commensurate with the top 2,000 pilots leaving, Delta pilots enjoyed career progression to the left seat and widebodies, which Delta has many, many, more than NorthWest.

Compare DOH and you'll see a 10 to 13 year NWA pilot can barely hold the 757. Similar seniority at Delta has you as a lineholder on the MD88/90 as a Captain, or a junior Captain on one of the Boeings. (a DOH merger would be close to a staple of the Delta guys near the bottom with having to re-train most of the airline in the resulting bid - not going to happen)

For the new hires the disparity is even greater. New hires are getting the 767ER and probably the 777 this year at DL. The do the same at NWA would take a decade.

NWA has an older fleet and it appears that overall, the number of jets being operated by NWA is set to decrease while Delta's confirmed delivery dates outline their growth. Also Delta has many, many more widebodies and 757's.

For the Delta pilots, particularly the new hires, a NWA merger is bad (perhaps not catastrophic, but really bad).

Who did you end up going to work for? ExpessJet? SkyWest? You have scope and ALPA pretty well figured out, but there is much for all of us to figure out about how a merger of two legacies would work out.

Just look at the pay rates on this web site and let me know how close things are to "being all fairly similar" and "equitable." By your plan a recent hire at Delta would see their pay decrease 40%, need to move to Detroit and trade their 767 books for a DC-9 manual. Nothing about that sounds all that "similar" or "equitable."

If NWA had a similar "early out" package for their pilots, this might work. But I expect ratios, fences and DOH for the recent hires.

scrapdog

Dude, you've gotta be friggin kidding me. Please tell me you don't fly for CAL - otherwise your post is about as bass ackwards as they come.

Rooting for mergers? We (@ CAL) just posted 71 million 4th qtr profit, we're still hiring at a good clip, we've got quite a few brand new 737-900ER's rolling in (as well as the 1st US carrier to get the 787...along with NW), and we've got good potential to have an oustanding new contract this year. Merging with a sinking ship like UAL would be the worst thing we could throw on the fire at CAL.

I hope this is seriously just some flame bait.

Bucking Bar

It would not half surprise me if Air France / KLM and a very cheap dollar had something to do with Delta's merger frenzy.... Pure speculation, but the stars seem to align better....

atpwannabe

I believe that their wouldn't be a combined list between NWA & Delta pilots. They may be one airline on paper however will remain two separate companies, ie SKW/ASA and AWA/USAir.

In addition, DOJ would favor the merger due to fact that there is no overlay in terms of route structure. NWA primarily serves the northcentral and northwestern regions of the country including the Pacific realm. Delta on the other hand services the Eastern and Southern parts of the US and has most of the eastern and western European market of all US carriers.



atp

newKnow

Dude,

10-13 years at NWA gets you left seat of the 320 or DC-9....

We also have more likely retirements that any other pilot group because our senior guys screwed the rest of us and still have their full pension. They will make less money for every year they stay past 60, so a lot of them will retire on time. Combine all of that with the 787's that are coming (if they ever come), you might see that NWA is bringing something to the table if there is a merger....