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Delta, UAL deal takes off
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April 30, 1998: 3:41 p.m. ET
Carriers say 'tentative' alliance is afoot, but pilots want to study it
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NEW YORK (CNNfn) - United Airlines and Delta Air Lines, the nation's first- and third-ranked commercial carriers, agreed Thursday to pursue a strategic alliance that would marshal the resources and routings of both companies, while allowing them to preserve their unique corporate cultures.
The companies expect the pact -- described as "tentative" in a joint press release -- to add $600 million in combined gross revenues.
But before it can become a reality, the alliance must win the consent of both airlines' pilots' unions, which have the contractual authority to approve or disapprove of the type of code-sharing agreements envisioned by the arrangement.
The alliance talks already have foundered on opposition from Delta's pilot group, which wants assurances of full voting representation on Delta's board in return for giving the thumbs up to an alliance. Such a prerogative is essential, union officials say, to ensure the pilots have a degree of input into how the alliance is managed once it is in force.
"This proposed alliance is a job security issue for the Delta pilots," said Dennis Dolan, the chairman of the Delta Master Executive Council, a unit of the Air Line Pilots Association. Dolan said Thursday the union leadership would perform "a thorough analysis" of the partnership over the next four to six week weeks.
Dolan's MEC counterpart at United, Michael Glawe, echoed his colleague's caution.
"Our collective bargaining agreement affords pilots a great deal of governance over code-sharing agreements, and we are not yet certain if this alliance is a good idea or not," Glawe said.
In their joint statement Thursday, neither airline alluded to these concerns. Yet in a prominent nod to the make-or-break influence of the pilots' unions, the statement stressed that any deal is subject to their consent.
The alliance adheres to a formula already familiar from a previously announced marketing alliance between American Airlines and U.S. Airways on April 23, and a similar partnership between Northwest Airlines and Continental.
The code-sharing arrangement enshrined in the United-Delta agreement would enable each airline to sell passengers seats on the other carrier's flights via a common reservations system. This means that passengers flying a United aircraft would, in theory at least, be given the option of purchasing a ticket from United or Delta.
Alliance limited to U.S., for now
A marketing marriage will allow travelers to combine frequent flyer miles on either airline. The companies said they will implement the agreement initially in the United States and then internationally, where regulatory controls on overseas carriers may prove thorny.
Europe, for instance, where Delta has extensive routings, is excluded from the agreement because of what officials of the companies call "the uncertainty and complexity of the European regulatory environment."
Airline executives cast the agreement in cutting-edge terms.
"This agreement represents the wave of the aviation future," said Gerald Greenwald, chairman and chief executive officer of UAL. "The economy and business have gone global; so have communications. Our customers tell us they need the same from us in transportation."
Greenwald stressed another appeal of the alliance: It will allow the partnered airlines to compete more aggressively at home and abroad "without costly and time-consuming investments in new equipment and facilities" associated with traditional mergers.
Under the bilateral arrangement, each airline will preserve its existing global alliances.
Whittling away at pilots' rights?
Through code-sharing, United would serve 39 new cities in the United States, and offer more than 2,500 new daily nonstops. The alliance would offer United customers increased access to Delta's network in the Northeast, Southeast and Southwest, including the heavily trafficked Delta Shuttle in New York, Boston and Washington, D.C.
Pilots are concerned that a merger would whittle away at a hard-earned right codified into their contracts: the right to determine who does what flying, where and when. Delta pilots won this stipulation, known as the "scope clause," in return for other costly concessions in the last round of negotiations in 1996, according to Karen McGuffey, an ALPA spokeswoman.
The clause, McGuffey said, is "the heart and soul of the contract." That is why, she added, the pilots are reluctant to waive the right without first satisfying themselves that they will not be penalized under an alliance.
"If we are to waive a provision of our contract, the Delta pilots expect to receive value in return," Dolan said.
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