Most of the major airlines are currently in merger talks. It seems inevitable that when this complex game of musical chairs ends, UAUA will have a new partner. I know that United is currently in talks with Continental, though they could end partnered with someone else.
Lufthansa is mulling investing in a United-Continental merger
By Julie Johnsson | Tribune staff reporter
1:56 PM CST, February 19, 2008
Lufthansa is mulling investing in a merger between United Airlines and Continental Airlines, sources said, a deal that could bring a major new player -- Houston-based Continental -- into the global marketing alliance led by the German carrier and Chicago-based United.
Lufthansa has discussed taking an equity stake in the merged airline with United officials, sources said. They cautioned that the size of Lufthansa's investment and whether it would participate hadn't yet been determined. Both United and Lufthansa declined to comment on the talks.
"We are of course watching the developments in the market very closely, and have enjoyed a strong relationship with United Airlines as a key Star Alliance partner in the region," added Jennifer Urbaniak, Lufthansa's manager of corporate communications for North America. "In general, any decisions regarding future investments take into account the synergies that could be realized on behalf of our passengers.
The discussions illustrate how consolidation pursued by U.S. carriers is sending ripples across the Atlantic. Europe's largest carriers, enjoying stable finances and the strong Euro, see an opportunity to strengthen their global networks, analysts said.
Air France-KLM Group, a Lufthansa rival, has already indicated it would invest in a merger between Delta Air Lines Inc. and Northwest Airlines, a deal that is expected to be announced later this week.
All three carriers belong to the SkyTeam alliance, as does Continental. However, Continental last year broke ranks with the alliance, declining to join its SkyTeam partners in pursuing a closer collaboration that would require antitrust immunity.
For U.S. airlines mulling mergers, outside capital could provide a cushion to withstand an economic slowdown as well as funding for new aircraft or upgraded service.
Foreign carriers are allowed to hold up to a 25 percent ownership stake in U.S. carriers, although their non-voting stake could reach as high as 49 percent, said Brian Havel, associate dean and director of the International Aviation Law Institute at DePaul University's College of Law.
The weak dollar also makes such investments a relatively cheap way for European carriers to shore up their global partnerships. "Alliances are an inherently unstable, second-best substitute for a merger," Havel said.
Lufthansa and United have discussed cross-investments in the past, sources said. And Lufthansa already holds a nearly 30 percent stake in bmi, another key Star Alliance partner.
In December, Lufthansa announced it was acquiring 19 percent of JetBlue Airways for $300 million, its first direct investment in a U.S. airline.
jjohnsson@tribune.com
chicagotribune.com
Unions a wild card as airlines seek deals
Labor set to use leverage on seniority, salary issues
By Julie Johnsson
Tribune reporter
February 17, 2008
Figuring out who will be CEO of merging airlines?
That's child's play compared with resolving the complex and emotionally charged labor issues that likely would linger long after any deal is consummated.
Perhaps the most important and contentious element of the process is largely out of management's hands: melding seniority lists for worker groups, which typically is handled by unions of the merging carriers.
But contract elements within executives' control, such as pay increases and work rules, won't be easily settled either, industry insiders said.
Airline unions have significant leverage for the first time since the Sept. 11 attacks, and they are using it as carriers scramble to complete deals and to avoid the labor wars that have hamstrung US Airways since its 2005 merger with America West Airlines.
"There's going to be a cost to be paid for our support," said Greg Davidowitch, who leads United Airlines' flight attendants union.
That places United Airlines Chief Executive Glenn Tilton and other airline leaders in a delicate position as they pursue industry-changing consolidation. After ignoring and often provoking labor's ire, executives need to engender goodwill. Doing so is their best hope of reaching labor accords that will be readily approved by workers of the merged carriers, observers said.
They also will have to contend with the enormous disruption that comes with combining thousands of workers. Although experts don't foresee large-scale job cuts resulting from a United- Continental Airlines merger or a Delta Air Lines-Northwest Airlines tie-up, workers still fear their careers will be stymied or chances of advancement dwindle as seniority lists are combined.
It's so difficult to combine disparate workforces that there's joke circulating: How do you know if the seniority integration was successful?
"If both sides are equally dissatisfied," said Kit Darby, a retired commercial airline pilot who is president of Atlanta-based consulting firm Aviation Information Resources Inc.
For starters, there's the bewildering lingo.
Seniority lists can be compiled by feathering, or shuffling pilots of similar rank, for example; fencing, which protects the career paths of one group of workers for a period of time; and stapling, which simply attaches one worker list to the bottom of the dominant airline's, leaving those employees vulnerable to job cuts. Many TWA pilots stapled to the bottom of American Airlines' seniority list in the 2001 merger, for example, are still furloughed.
Template in the works
The process, which could tax King Solomon's wisdom, played out last week as Delta and Northwest sought to wrap up a merger that would provide a template for other deals.
Their pilot leaders were hammering out a strategy for resolving contractual issues that will arise before, during and after a tie-up, said a person familiar with the talks.
On the table: a merger protection agreement that guarantees airplanes won't be parked or pilot jobs cut as the companies combine, a transition agreement to cover labor issues until a final contract is in place, and the early framework for a collective bargaining agreement.
But to get to a collective bargaining agreement, the companies will have to integrate their seniority lists. Friction already was apparent. One difficulty is that a greater portion of Northwest's pilots are approaching the ends of their careers than those at Delta, which is effectively the buyer.
One solution might be fencing. For example, Delta-Northwest could guarantee the career paths of pilots in line to attain their best-paid jobs, becoming captains of a Boeing 747 jumbo jets at Northwest and captains of Boeing 777s at Delta, sources said.
Both airlines' pilot groups are affiliated with the Air Line Pilots Association, the nation's largest pilots union, which has developed guidelines that determine seniority based on a pilot's career expectations.
Those rules are aimed at helping other carriers avoid the labor schism at US Airways, where pilots and other major worker groups still don't have contracts nearly three years after the merger was announced.
"It's designed to prevent a windfall for one group or another," said Darby. "How that actually shakes out is unclear."
Labor issues are never easy to resolve and have blown up many potential deals that were never made public. For example, Delta and United called off a merger a decade ago, just hours before it was slated to be announced. The deal killer: Delta pilots' demand that they gain a board seat, like United pilots enjoyed, say people close to the carriers.
Tensions are high as airlines contemplate mergers that would remake their industry. United is in talks with Continental, but would resume negotiations with Delta if the Atlanta-based carrier backed away from Northwest. And every other major carrier is contemplating deals, sources said.
Airlines are pushing to complete deals in time to be reviewed by antitrust authorities within the Bush administration, a process that would take at least six months, experts say. They also are rushing to bulk up global networks to compete as trade barriers fall on trans-Atlantic travel this spring.
Workers, meanwhile, see a chance to recapture some of the wages they lost as carriers reorganized during the recent downturn.
United pilots aim to become the best-paid in the industry, a stature they held briefly at the start of this decade before the Chicago-based carrier headed into bankruptcy.
"I have impressed upon this management group that if they expect our cooperation in any consolidation scenario, it will not be a matter of if our needs are met, but when," Capt. Steve Wallach, head of United's pilots union, wrote in a Feb. 8 letter to pilots.
Coordinating efforts
Adding to the potent mix is the fact labor contracts are coming up for renegotiation across the industry. Pilots and flight attendants unions have been coordinating efforts to an unprecedented degree as they gear up for contract talks and consolidation.
In January, representatives from 26 flight attendant groups representing 90,000 workers gathered in Washington, D.C., to chart strategy.
"If there are going to be opportunities that result from any consolidation, we're going to leverage our collective experience," Davidowitch said Thursday after a two-day planning session with leaders of American Airlines' flight attendants union.
United offered concessions to pilots and flights attendants in January, a move some union leaders interpreted as an effort to build goodwill in advance of a merger. United spokeswoman Jean Medina said the timing was a coincidence.
"We've been open to talking with [the pilots union] on how to move forward on these and similar issues for many months," she said. "We have been and continue to engage with our union leaders on issues important to them, our employees and our company."
But insiders say United has signaled to union leaders that it would boost worker pay and other benefits if it successfully strikes a deal. Such an agreement likely would give all workers the best salary and retirement benefits offered by either carrier, as well as a premium.
Medina declined to discuss specific details of United's labor strategy.
"Of course, our unions will be part of any consolidation discussions," she said.
Some observers worry that workers will demand wage increases that could threaten the long-term stability of the merged carrier.
"We're entering into an era of increased pilot wages and benefits until the whole thing becomes unstable again," said Roger King, airline analyst with CreditSights Inc. "It's just how this industry works."
jjohnsson@tribune.com
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