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Feb072008

« F + E = LPP^DL: Fairness and Equity; Seniority Integration; Union Representation; and Lee Moak Again »

In a Delta Air Lines Deal, Labor Protective Provisions Were Board Approved Before the Law Was Passed

Well, leave it to Susan Carey, along with Dennis K. Berman and Paulo Prada, of the Wall Street Journal to again write, and break the most recent period of silence surrounding a potential deal between Delta Air Lines and Northwest Airlines. In the same story, she reports that the preliminary talks that have taken place between United Airlines and Continental Airlines “have grown more serious”.

Whereas news on the deal side has been quiet, I have also noted the deafening silence from Lee Moak, the Chairman of the Delta chapter of the Air Line Pilots Association. My guess is Captain Moak is doing what all labor leaders should be doing and that is preparing for what is arguably going to be the most important period for organized labor since the passing of the Airline Deregulation Act.

A Recent Law Was Passed…..but the tenets had already been adopted by the Delta Board of Directors

SEC. 117. LABOR INTEGRATION. (a) LABOR INTEGRATION- With respect to any covered transaction involving two or more covered air carriers that results in the combination of crafts or classes that are subject to the Railway Labor Act (45 U.S.C. 151 et seq.), sections 3 and 13 of the labor protective provisions imposed by the Civil Aeronautics Board in the Allegheny-Mohawk merger (as published at 59 C.A.B. 45) shall apply to the integration of covered employees of the covered air carriers; except that--
(1) if the same collective bargaining agent represents the combining crafts or classes at each of the covered air carriers, that collective bargaining agent's internal policies regarding integration, if any, will not be affected by and will supersede the requirements of this section; and
(2) the requirements of any collective bargaining agreement that may be applicable to the terms of integration involving covered employees of a covered air carrier shall not be affected by the requirements of this section as to the employees covered by that agreement, so long as those provisions allow for the protections afforded by sections 3 and 13 of the Allegheny-Mohawk provisions.
(b) DEFINITIONS- In this section, the following definitions apply:
(1) AIR CARRIER- The term `air carrier' means an air carrier that holds a certificate issued under chapter 411 of title 49, United States Code.
(2) COVERED AIR CARRIER- The term `covered air carrier' means an air carrier that is involved in a covered transaction.
(3) COVERED EMPLOYEE- The term `covered employee' means an employee who--
(A) is not a temporary employee; and
(B) is a member of a craft or class that is subject to the Railway Labor Act (45 U.S.C. 151 et seq.).
(4) COVERED TRANSACTION- The term `covered transaction' means--
(A) a transaction for the combination of multiple air carriers into a single air carrier; and which
(B) involves the transfer of ownership or control of--
(i) 50 percent or more of the equity securities (as defined in section 101 of title 11, United States Code) of an air carrier; or
(ii) 50 percent or more (by value) of the assets of the air carrier.
(c) APPLICATION- This section shall not apply to any covered transaction involving a covered air carrier that took place before the date of enactment of this Act.
(d) EFFECTIVENESS OF PROVISION- This section shall become effective on the date of enactment of this Act and shall continue in effect in fiscal years after fiscal year 2008.

As we move forward there will be lots of stories about labor issues, air service to communities of all sizes, domestic issues, international issues, consumer issues and of course the horror stories of past deals gone bad to name a few. I sincerely believe that “smart labor” recognizes that the current speculation of possible combinations is not just talk but may be their best hope to position themselves for the future. Naïve thinking that Section 6 bargaining will return to its historical nature – well it is just naïve.

As we have written here many times and in many different ways, the current industry construct does not work for many, if any, major industry stakeholder(s). Any concept of change is difficult to accept on both the emotional and rational levels for sure. Short- term displacements and pain for some -- yes. Being forced to step back and accept that tomorrow will be significantly different -- absolutely.

But the burning question for me is: is the implementation risk of a merger deal (seniority integration, single collective bargaining agreement etc.) any greater than a leader having to manage the expectations of any employee group that actually believes they can make themselves whole in the next round of Section 6 negotiations? I do not think so with the industry facing an oil environment that was imagined by only a few, a weakening economy, increased global competition, general lack of an investment thesis, presence everywhere and pricing power no where -- no matter who you are.

My guess is Captain Moak has taken the basic tenets (fairness and equity) of the Allegheny-Mohawk merger protection provisions to heart and is studying the same merger scenarios that his management is. The primary difference in his due diligence is that he is focused on seniority lists and not EBITDAR. In his diligence process, I am sure he is figuring how to best analyze and “game out” the combination that treats each his own pilots as well as all pilots of a combined entity fairly and equitably. That is what leaders do and in this case it is leaders from both management and labor.

The integration process has evolved over the years since the Allegheny-Mohawk Labor Protective Provisions were originally enacted. There have been more failures at adopting fairness and equity than not to be sure. But it is incumbant for labor and management leadership this time to ensure that career expectations are met for all employees. Simply this concept means that the relative seniority of a combined list is not significantly different for a respective employee in a combined entity than it is for that employee today.

On the labor side, rigorous analysis of seniority lists can be done ahead of an announcement. My only hope is that Moak is being joined by his counterparts in Chicago, Minneapolis/St. Paul, Houston and other airline corporate homes. From what I read, Moak understands that a short implementation period is a friend of the deal and a long implementation period is well – just look at US Airways. Moreover, if pilots and other employees are seriously interested in a piece of equity ownership of the new entity, labor should absolutely want a short implementation period too.

Yes, There Are Employees Other Than Pilots

What makes any Delta combination interesting is the fact that other than the pilots and dispatchers, the company is non-union. Delta is a company that has trumpeted the idea of fair and equitable throughout its existence whether in union avoidance strategies directly or in the day to day management of its various class and crafts of employees. Whether conscious union avoidance or not, along the way you have to walk the walk and not just talk the talk. And in Atlanta there has obviously been more walkin’ the talk than talkin’ the walk.

Just How Might Delta’s Current Non Union Workforce Play Out

Any deal led by Delta, or involving Delta, opens up a potential union representation box. Stated otherwise, if a combination of any class and craft of employees involves two different unions, then more than likely there will be an election; and if there is a combination of any class and craft of employees where one is union and the other non-union, and the unionized group comprises 35% or more of the total employees, then there would likely be an election.

In the Delta combinations being discussed, in each case the pilots are organized and members of the same union so no representation elections are expected.

But the flight attendants are a different story. The Northwest and United flight attendants are represented by the Association of Flight Attendants, AFA-CWA. And given that a combined entity would be comprised of 35% or more union represented employees, a representation election would likely occur. In that election the flight attendants could either vote for AFA-CWA, another flight attendant union or for no representation in either merger scenario.

AFA-CWA has an organizing campaign underway at Delta. The decision point for the combined work force would be simply: am I better off working under a collective bargaining agreement or under the wage and working conditions employed by Delta with its current flight attendant work force.

As for the mechanics, this one also has some interesting nuances to it as well. Delta’s in house maintenance work force is unorganized and the company has begun to increase its insourcing of maintenance work. Each United and Northwest have been outsourcing an increasing amount of their maintenance work albeit for different reasons. Northwest’s mechanics were in effect disenfranchised by AMFA’s poorly conceived decision to strike Northwest and therefore, based on my read of the LPPs, the mechanics of a combined Delta – Northwest entity would not trigger a representation election. In a United - Delta combination, an election would be triggered but who the incumbent union would be is not known at United because currently the Teamsters are challenging AMFA. Got that?

As for the ground and related employees, the scenarios for either a Delta and Northwest or a Delta and United combination are the same. An election would more than likely be triggered given that the International Association of Machinists and Aerospace Workers (IAM) represent the various class and crafts of employees in this broad group at each Northwest and United. The definition of class and craft here will be a story to watch and they include ramp, customer service and reservations.

And more than likely, a representation election would be triggered by combining the dispatch groups. Although small in number, they are governed by the same rules as well.

Bigger Concerns than Unionization

In addition to the capable leadership of Moak, Delta management is led by Michael Campbell, their EVP of Human Resources, Labor Relations and Communications. Campbell was Gordon Bethune’s head of labor at Continental. The issues of representation and combining collective bargaining agreements are complicated for sure - but in capable and professional hands.

Should the investment community be concerned of union representation at Delta? No. The investment community should be more concerned with seeing that labor integration is done as quickly as possible, whether it involves unions or not, as this provides the shortest pathway to realizing merger synergies. For Delta, fairness and equity has been adopted at the Board level. Now it is law and this is important for many to consider when the naysayers repeatedly and continually tell us all to remember the menu of historic disasters.

At the end of the day, what was important for Delta yesterday will carry the same weight for Delta tomorrow. Given the current lack of unionization at the carrier, some might say that something was done right. Delta has historically understood that higher wages in return for commensurately higher productivity has served its employees and the company well. This concept is a most important model for the industry to sustain and will promise to be a most important theme in any upcoming negotiation. Further, it will be important for any combination to maintain - and sustain - the highest productivity possible as the industry needs to continue to shed fixed costs and not add to them.

Isn’t that really the issue behind today’s consolidation push anyway? I think Delta and others have learned from past mistakes.

Reader Comments (1)

I can only hope Delta Flight Attendants are smart enough not to vote for AFA. They are not interested in anything but collecting dues. They have screwed over members on retirement,pay cuts,seniority merge and many other things over the years. NWA/Delta would be better off non-union. Former AFA member

05.5.2008 | Unregistered CommenterAnonymous

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