Unions are key pieces in mergers

Ignoring them can ruin deals, say airline analysts

By Chris Walsh, Rocky Mountain News (Contact)

Thursday, February 21, 2008

Airline employees bore the brunt of the industry's cost-cutting efforts following the 2001 terrorist attacks, taking huge pay and benefit cuts that dampen morale to this day.

But workers now wield significant influence, as airlines - including United Airlines - explore the possibility of merging, observers say.

"Airlines can usually go ahead and force a merger whether unions like it or not" by structuring a deal that avoids violating contract agreements, said Clinton Oster, a professor at Indiana University who has studied airline economics since the 1970s. "But whether the merger is actually successful, that's a different thing. For that to happen you need the work force to acquiesce or even embrace it."

Labor issues are already coming into play in merger talks between Delta Air Lines and Northwest Airlines. Negotiators representing pilots of the two airlines reportedly have reached an impasse over seniority, putting the deal in "serious jeopardy," sources told the Associated Press.

Delta and Northwest don't need a labor agreement between the pilots unions before announcing a combination. However, it could be extremely difficult to pull off a merger without one.

"I think the approach taken in any consolidation now will be to get deals locked in with the unions before mergers are announced," said Stuart Klaskin, an aviation consultant in Florida. "Most mergers have been structured as management deals, and then labor is brought in down the road. That's just a bad idea. It can be disastrous."

Labor negotiations have created turmoil in the past, and in some instances the problems still linger. Pilots at US Airways and America West, for instance, waited until after the 2005 announcement that the airlines would combine to try to negotiate a seniority and joint contract accord. Nearly three years later, that hasn't happened.

It's an issue United likely will face should it decide to merge, which experts say is a strong possibility if Delta and Northwest announce a deal. United - Denver's dominant carrier with more than 50 percent of the market - reportedly is in talks with Continental Airlines about the possibility of combining.

United spokeswoman Jean Medina said only that "our unions would be involved in any consolidation discussion."

United workers took two major pay and benefit cuts during the carrier's 38-month bankruptcy, and many remain upset with management. The airline's major unions vow to fight any merger that doesn't address their needs.

"For them to throw a merger into the mix on top of everything else over the years, well, we're not going to stand for it if it doesn't take care of us," said Joseph Prisco, president of the Aircraft Mechanics Fraternal Association Local 9 in Burlingame, Calif.

Unions can oppose mergers in several ways. Most contracts contain certain provisions and procedures - typically involving issues such as seniority - that companies must adhere to in case of a merger, said Sara Nelson, a spokeswoman for the Association of Flight Attendants.

Worker opposition also could make it tougher for airlines to gain federal approval or to realize the intended cost savings if the merger goes through.

"If you want to be confrontational, then you could try to push one through without backing from employees," said Gary Chaison, professor of labor relations at Clark University in Worcester, Mass. "But that's a dangerous route."

The Associated Press contributed to this report.

The latest on the talks

* The plan: The boards of the two carriers had been expected to vote Wednesday on a merger.

* Stumbling block: Pilot groups have been unable to reach an agreement over seniority, which now threatens to derail a deal. A person familiar with the negotiations said the companies might announce a merger next week if the pilot issue is cleared up.