First Labor Hurdle Cleared in Delta – Northwest Deal?

The Devil Will Be In The Details

As Delta Air Line’s Board of Directors prepares to meet tomorrow in New York, Nathan Hurst of the Detroit News reports that the pilots of each Delta and Northwest have tentatively agreed to a framework of a deal. As in all things difficult, the devil is in the details. But the story suggests that an agreement on seniority integration has been reached subject to membership ratification.

There is no mention of a construct of a single collective bargaining agreement but the article does suggest that the pilots will receive an equity stake and a voting board seat in the combined entity. In the event the tentative agreement is not ratified by the membership, a binding arbitration mechanism has been put in place.

Susan Carey and Paulo Prada report in today's Wall Street Journal that a number of other “deal issues” still need to be finalized including the size of the Air France/KLM stake, compensation for non-pilot employees, a premium for Northwest shareholders among other items.

In the Journal story, Carey and Prada write “Some industry executives have worried privately how zero capacity reductions and higher labor rates would hurt the rest of the industry”? I am an analyst that wonders the very same thing but as mentioned above, the devil is in the details.

But it sure looks like tomorrow’s Board meeting is important and maybe we can start to look at the details instead of wondering what they might be. Or, maybe we will hear as soon as today or tomorrow according to the Atlanta Journal-Constitution.

Hell Yes, Going It Alone Remains an Option

In Washington, D.C., Congressman Oberstar says “hell no” before hearings are held on significant issues important to the US airline industry. In Atlanta, Delta Air Lines is reminding us that there is some probability that “no” to a deal just might be the right answer at this time after the company and its board carefully review possible merger combinations.

Russell Grantham, in this morning’s Atlanta Journal-Constitution offers a clear line of sight to the issues Delta views as critical tenets of any combination. Delta’s #2 executive, Ed Bastian, is quoted in the story as saying that “any merger must meet three major goals. He said Delta won't agree to a deal unless the proposed merger: creates a global network that "fills holes" in Delta's operations; avoids burdening the combined airlines with excessive debt; and treats employees fairly and assures them of job and seniority protections”.

We seem to be hung up on the political clock. Yes it is ticking. But with vigilant focus on satisfying certain labor issues, is the time on the clock of critical importance? Personally, I would rather see the industry address those issues it knows will be important to all stakeholders before the spotlight is turned on. It seems to me that by learning from past mistakes, the political clock may be less important. And can something really be completed in 10 months?

The airline industry is not the only industry that is carefully studying and proposing possible acquisitions. Yesterday Microsoft said Yahoo - and not hell no - to a possibility of diversifying its business and in turn creating a stronger competitor to Google. Last time I checked, the internet was a global network business just like the airline industry. And we are proud of the iconish names that carry the US flag in the technology space. But I digress……

More to come.