Delta-Northwest deal faces headwinds

Quick Vote

Do you think the merger of Delta and Northwest will result in...

• Higher airfares?
• Lower airfares?
• No change in airfares?

or View results

NEW YORK (CNNMoney.com) -- Delta Air Lines and Northwest Airlines have finally agreed to a merger. But it could be a bumpy ride before a deal is officially completed.

The powerful Air Line Pilots Association (ALPA) union finds itself badly split on the proposal, which would form the world's largest airline.

Pilots at Delta (DAL, Fortune 500), the nation's No. 3 carrier in terms of miles flown by passengers, heartily endorsed the deal as a key to preserving a profitable U.S. airline industry.

"The merged Delta will be a more stable, financially durable and investable airline that will provide benefit to Delta and Northwest employees, the communities we serve and, importantly, the traveling public," said a statement from Delta's pilot union.

But pilots at Northwest (NWA, Fortune 500), the nation's No. 5 airline, are angry over their inability to reach a deal that would preserve their seniority at the combined carrier. They lashed out at the proposed deal and vowed to battle against it.

"No pilot group is going to put up with this. No amount of money can sustain a carrier which creates this level of discord," said the statement from the Northwest unit of ALPA. "This is a recipe for failure. Under these conditions, Northwest Airlines and all the stakeholders, including the pilots, other employees and customers, are better served by a standalone airline."

ALPA's international offices says it would support the merger as long as both the Northwest and Delta pilots can be satisfied with the terms of their post-merger contract. International spokesman Pete Janhunen wouldn't say what the union will do if Northwest pilots can't reach a deal.

The split among pilots is just one sign of how polarizing the proposed deal, which is likely to reshape the airline industry, is.

Other unions at Northwest are also objecting to the merger. The International Association of Machinists and the Association of Flight Attendants also issued statements voicing opposition to the deal.

The unions won't have the power to block the combinations by themselves. But they do have the ability to cause problems for a combined carrier going forward. US Airways Group (LCC, Fortune 500), which was formed when the former America West bought US Airways out of bankruptcy in 2006, is still operating internally as two separate carriers because of an inability to reach a new labor agreement with the two pilot groups there.

And some fear that the deal could spark more mergers and this may have a negative impact on consumers.

"I'm concerned about the effect this merger will have on the aviation industry," said Rep. Jim Oberstar, D-Minn., and the chairman of the House Transportation and Infrastructure Committee. "It will trigger a cascade of mergers. You will end up with three mega global air carriers. Then what voice does an air traveler...have? None."

Glenn Tilton, CEO of United Airlines parent UAL Corp (UAUA, Fortune 500)., conceded more deals are likely. In a statement Tuesday, he suggested UAL is working on one of its own.

"Consolidation is but one of the changes necessary to achieve sustained profitability," he said.

No. 2 UAL has reportedly been holding talks about a possible deal with Continental Airlines (CAL, Fortune 500), the nation's No. 4 carrier.

Kevin Mitchell, the chairman of the Business Travel Coalition and a critic of the Delta-Northwest deal, believes that fear of more mergers means there's a 75% chance the deal might be killed by Congress or antitrust regulators in the U.S. or Europe.

"Look at the United-US Airways deal," said Mitchell about the proposed merger that was blocked by regulators in 2001. "There were a lot of people who spoke out and revealed what the problems were, including Congress, attorneys general, unions, flyers. I see the same outpouring of criticism."

Mitchell argues that more deals are not in the interest of consumers since they would lead to reduced choices and possibly higher fares. But some other passenger groups say they are open to the idea of more airline consolidation.

"I think it's important for our carriers to be financially viable and healthy," said David Stempler, president of the Air Travelers Association.

He added that low-fare carriers such as Southwest (LUV, Fortune 500) and JetBlue (JBLU) could keep the major airlines from raising fares too dramatically.

Airline consultant Michael Boyd said the relatively limited overlap between Delta and Northwest, along with the fact that they already book passengers onto each other's flights through a code-share agreement, makes it more likely the deal will be approved.

But he said it's wrong to assume United and Continental or other major carriers will get together just because of this deal.

"I'm sure United is talking to anyone who owns an airplane about a possible deal. Hedge funds will try to put the deal together. But there are no guarantees there's a good fit out there," said Boyd.