Staying Legal: Mergers & Acquisitions

Smooth flying, collision course, or government intervention? Mergers come at a difficult time for mechanics

When times get tough, costs rise, and profits tumble, it is very popular in the corporate world of air carriers to think about mergers and acquisitions in a search for some profits and lower costs. The theory being the economies of scale that are gained by joining forces. Of course, the danger to the traveling public is that fares will rise, there will be less competition, and therefore fewer options for the public; also, there is always the threat of layoffs where there is a surplus of employees created.

For example, one might think that the ongoing merger talks of Continental and United, would provide great expectations for these large legacy carriers. History however may prove otherwise. Since mechanics and most other employees at United are union and Continental’s are not, many see an upcoming conflict of major proportions when labor moves to bring into its fold a combined non-union employee base. At this late date this continues to prove difficult for Delta’s merger with Northwest.

Of course no one believes that employees will leave unions and go non-union but anything is possible. There is a system in place in most contracts to de-certify a union but this is certainly not a likely result in this merger if it is successfully completed and approved by the government. The more likely result, considering the weight behind labor’s push, will be that the merged units would be considered a single operating unit for the purpose of an election. This will allow for all the employees to participate in any union that is ultimately certified at a merged entity. Many believe that more unionization will lead to further labor difficulty not less. The various unions of course say otherwise.

Higher costs

Dealing with the expected combined labor efforts of several airlines will almost always result in the merged airline suffering significant increased costs. More union activity will clearly increase the costs of dealing with labor and bring them more in line with other carriers, who pay dearly to support their activities with their unions.

The Delta merger with Northwest for example in 2008 was touted as a smooth transition. However, flight attendants are still without a contract and pilots continue to dispute a seniority system that is not yet finalized. Delta has in the past enjoyed a longtime labor peace of sorts with its employees by simply paying them well and providing benefits close, if not equal, to their labor union brothers without the additional overhead of dealing with the union hierarchy. This may be a legacy of its former history as Delta-Chicago and Southern Airlines, Delta-C&S as it was titled. Also, the smooth merger with Western Airlines in the recent past also shows the strength of its management of the labor issue. The plan seemed to simply provide union-like benefits and thus try to avoid any contact with unions. This will not be possible in the future.

So why would such a successful company like Continental decide to merge with shaky companies that have a long history of problems like United and its two bankruptcy filings? Outside of the obvious economies of scale that come from combining various aspects of their operations, there seems to be scant advantage outside of calling itself the largest domestic carrier. Many mechanics and other employees are keenly aware of the possibilities of their being laid off in the wake of a merger, a common result seen many times in similar situations.

In addition, we have already seen difficulties surface in the merger of US Air and America West. They are still suffering great pains in merging their pilot lists regarding seniority and still maintain a certain separation of the operating entities.

The cause of it all

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