Twists In The Delta Northwest Merger

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But the regulatory process at both the Justice and Transportation departments is controlled by lower-level career bureaucrats, and they are rarely motivated by the timetable of administration changes. The United-US Airways merger was passed seamlessly from the Clinton to the Bush administrations. And it was Bush’s Justice Department that spiked the deal in July of 2001.

Act Three is the “union dues” phase. Airlines are heavily unionized and longtime line employees resent highly paid, transient bosses controlling their careers. One example: Almost three years after the US Airways-America West merger was first announced, the combined carrier is still trying to consolidate its old union contracts. A bitter fight between the two competing pilots’ groups wasn’t settled even after a supposedly binding arbitrator’s ruling. And just last week, the pilots voted out their old union. The labor squabbles have helped drive US Airways to the bottom of the passenger-satisfaction charts.

This time, pilots are the only unionized employee group at Delta; Northwest’s rank and filers, who despise the airline’s union-breaking chief executive, Doug Steenland, might have welcomed the merger. But the atmosphere has been poisoned: Anderson, who’s slated to be top dog of the combined carrier, cut a separate, premerger contract deal with Delta’s pilots. Naturally, Northwest’s aviators now oppose the merger, and most other Northwest unions have lined up in opposition to the deal too.

The final act is what I call transition turmoil. While they await the government, Delta and Northwest will start contingency planning. Putting two carriers together entails worldwide coordination of hundreds of moving parts—fleets, employees, routes, maintenance, schedules, airports, advertising, marketing, pricing, distribution—and requires the spade work of hundreds of middle- and top-level executives. While management diverts time to planning for what may never be, ongoing operations suffer. In the runup to the doomed United-US Airways merger, for example, United’s performance was horrific. During some weeks in the summer and fall of 2000, three out of four flights ran late; hundreds were cancelled; and passengers and luggage were stranded from Hong Kong to London’s Heathrow Airport. United never recovered: It declared Chapter 11 bankruptcy two years later, spent more than three years working on a botched reorganization, and has been looking for a merger partner since it exited bankruptcy, in February 2006.

The plot twist this time? There isn’t one. The Delta-Northwest deal dwarfs any other previous airline combination and will be tricky to execute. And since neither carrier has any spare management, logic dictates that there will be months of pain inflicted on business travelers even before the two airlines learn if they will be allowed to merge.

The Fine Print…

Another familiar theme of airline-merger melodramas: Which executive has feathered his nest best? The winner this time is Northwest’s Steenland. He has a clause in his employment contract that allows him to leave in June with a $7.8 million special payout. But the payout window reopens if he departs after a merger. As currently configured, Steenland would become a director of the combined carrier with no executive role. In other words: ka-ching! 

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