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Airline memos cloud agenda

Published February 27, 2008 11:42 pm

Delta, Northwest assure employees merger won't be complete unless it's good for both
This is an archived article that was published on sltrib.com in 2008, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Divining what the top executives at Delta Air Lines and Northwest Airlines were signaling by sending out internal memos to employees this week is like figuring out Kremlin politics in the era of the Soviet Union.

At one level the memos were meant to assure their employees that no merger between Delta and Northwest would be completed unless it was in the best interest of each airline.

But on a deeper level, Delta CEO Richard Anderson and President Ed Bastian and Northwest CEO Douglas Steenland may have been hinting that seven weeks of merger talks between the carriers may have been derailed by a dispute between pilots over how to integrate their all-important seniority lists.

Any deal must include seniority protection, create greater job security and boost employee-career opportunities before the Atlanta-based Delta would agree to a merger, said Anderson and Bastian, whose hand-written signatures appear at the end of their memo.

And in an e-mail circulated in Congress, Sametta Barnett, Delta's government affairs director, said "for the time being Delta will remain a stand-alone airline."

Steenland, who issued his missive after the Delta memo circulated, said Northwest continues to believe that consolidation among the biggest U.S. carriers is a matter of time.

"Given that, our board of directors and management team are prepared to consider positively a transaction that would provide greater long-term security and growth opportunities for our employees," Steenland wrote.

Neither memo acknowledged the other airline, which underscored conjecture that ran in several directions. Delta and Northwest might be trying to pressure pilots to reach a deal. Or the airlines were content to wait indefinitely for pilots to figure out the best way to resolve seniority since they already agreed on a $2 billion package that would include higher pay, stock in the combined Delta and a seat on the board. Or Delta and Northwest had given up hope of a union and were suggesting they would be open to merger talks with other airlines.

"This is a game of high-stakes chicken," said Michael Derchin, a FTN Midwest Research Securities Corp. analyst in a research note. "If logic prevails, there will be a compromise on seniority."

Morgan Stanley Analyst William Greene suggested the risk of losing the increased pay package may push pilot negotiators to compromise.

On Wednesday, the pilots were mum. Asked how pilots feel for being singled out, Kelly Regus, a spokesman for the Delta chapter of the Air Line Pilots Association said, "At this time . . . we are not commenting on any merger-related topics."

Representatives for the union's Northwest chapter did not return telephone calls seeking comment, while a Northwest spokesman declined to comment. Delta officials did not return telephone calls.

The stocks of both airlines fell Wednesday. Delta closed at $15, down 5.7 percent, while Northwest fell to $15.10, also down 5.7 percent.

Delta's future is important to Salt Lake City. The airline employs 3,500 people in Utah, including 600 pilots stationed at its Salt Lake City International Airport hub.

pbeebe@sltrib.com