Consolidation is again the talk of the industry with Delta-Northwest the most likely pairing

As US major carriers stumble towards likely consolidation, labour and legislative leaders are beginning to stake out blocking and delaying positions.

Analysts say the merger negotiations are more serious than they have been since US Airways' failed attempt to take over Delta. The proposed US Airways-Delta deal died a year ago in the face of creditor and investor opposition, but it is investors who are now pushing for consolidation, says Credit Sights analyst Roger King.

Driving the shareholder pressure is the belief that any new administration elected late in 2008 would not be business- or merger-friendly. "Time is running out" for antitrust review by the ­­Bush administration, says UBS ­securities analyst Kevin Crissey.

While Delta is widely believed to have been approached by United Airlines, it is the Delta/Northwest combination that is more likely, says King. A Delta/Northwest tie-up would be more quickly consummated, given their SkyTeam relationship and possible Air France-KLM support.

House transportation committee chairman Jim Oberstar confirmed in January that Northwest executives had told him they and Delta were "in the early stages" of merger talks. Oberstar, a Minnesota Democrat, says "it's Northwest's view that there are benefits to Northwest and Delta by joining forces", but adds: "I don't think mergers are in the best public interest and that includes this one."

Senators from Minnesota, where Northwest is based, have also expressed concerns about potential job losses. Northwest has cut about 45% of its workforce since 2000, making it a likely junior player. Senator Johnny Isakson from Georgia, where Delta is based, says he had been assured by Delta chief executive Richard Anderson that Delta would keep its headquarters there and would preserve its name no matter what happens.

If lawmakers cannot block a transaction outright, they can try to delay it until a less business-friendly administration takes over or until investors lose patience. The competition authorities have very closely scrutinised and delayed even Northwest's proposed 47% stake in Midwest Airlines, a relatively minor deal that has been under review since last August.

Labour leaders are also objecting to the anticipated consolidation. The Northwest pilots union has kept a low profile, making Delta's pilot union and its leader, Lee Moak, the key union figure. Moak has made clear that labour must be part of any negotiations or any deal. Anderson, who was Northwest's chief executive until 2004, has made it clear that he will do so. In a message to Delta employees, he said: "Delta would be open to consolidation if it is in the best interests of our shareholders and our employees."

While Moak has issued strongly worded public statements and has activated a strike preparedness centre, he has met with Delta leaders and has acknowledged that "consolidation may be at our door". According to the director of MIT airline project, Bill Swelbar: "Moak is not saying 'no' for the sake of saying 'no' and so has become part of the process."

The pilots union at United has been more militant in its stance on mergers. Flight attendant unions have also vowed to assert themselves in any merger talks. Association of Flight Attendants president Patricia Friend points out that more than a dozen flight attendant contracts will be open for renegotiation by early 2009, making the work group a potentially powerful force.

But Swelbar says that when airlines "are at best marginally profitable, how much can they afford any increased labour costs?" Those margins are narrowing, as evident in American Airlines' fourth quarter results. American, which a few months ago was expecting only a marginal loss, posted a $69 million loss, almost entirely because of higher fuel costs.

As airline share values plunge along with the overall stock market and as venture capital is nowhere near as readily available as it was last summer, it is not clear how affordable consolidation would be or how it would ­counter rising oil costs.


Source: Airline Business