Familiar face pushes merger: Hedge fund's point man tried to unite Delta, Continental

Gordon Bethune has a knack for popping up in Delta Air Lines' affairs, even though he's never worked there. The blunt-spoken former Navy mechanic made his name 13 years ago when he led Continental Airlines' transformation from a twice-bankrupt...


Gordon Bethune has a knack for popping up in Delta Air Lines' affairs, even though he's never worked there.

The blunt-spoken former Navy mechanic made his name 13 years ago when he led Continental Airlines' transformation from a twice-bankrupt basket case into one of the industry's best-run carriers.

Twice during his 10 years as Continental's CEO, he was involved in talks aimed at merging the two carriers. He was quick to give his views on why they didn't work out, once citing the then-Delta CEO's "stupidity" in insisting on controlling labor integration.

Late last year, Bethune appeared again on Delta's radar as a hired adviser to its bankruptcy creditors as they mulled a buyout bid from US Airways, getting paid $250,000 for every 10 days of work.

Now Bethune, 66, is once again in the middle of merger talk swirling around Delta. Pardus Capital Management hired him to help make its case that Delta and United Airlines need to merge as the industry faces record jet fuel costs.

Pardus, a New York hedge fund with stakes in both Delta and United, urged executives at the airlines in a mid-November letter to pursue a stock-swap merger that would create the world's largest carrier, with hubs in the world's two busiest airports, Atlanta's Hartsfield-Jackson and Chicago's O'Hare, and extensive routes to Europe and Asia.

In the weeks since, Bethune has pitched the idea to other investor groups, although it remains unclear whether any will line up behind the Pardus proposal.

Asked why the investment firm chose him, Bethune half-jokingly answered: "They looked for all the guys who have been successful in the [airline] business and they found only one: me."

Bethune has a point, said Mike Boyd, a longtime aviation consultant. "He's got more credibility than anyone in this industry, period," said Boyd, of the Boyd Group in Evergreen, Colo.

"He just tells it like it is," Boyd added. "The problem is, he tells it like it is."

This is how Bethune tells it: The industry has too many players to remain prosperous as the cost of fuel --- most airlines' biggest expense --- follows the price of oil skyward. He says the routes and hubs of Delta and United have little overlap that would cause job losses or political opposition.

Despite almost immediate expressions of opposition from Delta's pilots --- its only large union group --- and workers' vociferous opposition to the US Airways deal, Bethune thinks employees will ultimately support the merger because they would get stock in the combined airline and job opportunities would grow. He believes he knows how to address employees' worries, having won widespread worker support for his 1990s turnaround at Continental despite cutting thousands of jobs.

He says most of the job losses from a Delta-United merger would be confined to the airlines' regional carriers (such as Atlanta-based Atlantic Southeast Airlines and Delta-owned Comair in Cincinnati).

Delta's and United's executives have both "publicly talked about the need for consolidation," Bethune said. "It's time to do it."

Both Delta's and United's managements favor consolidation, and Delta's directors formed a committee to study that and other scenarios. But the carriers say no negotiations have occurred, and Delta says it's only interested in deals in which it's the surviving company.

Even if managements favor or oppose a deal, they have to step delicately. Top executives have lost jobs for floating a merger proposal without first clearing it with the board of directors. And while they have a legal and financial duty to investors who see mergers as a path to higher stock values, intense opposition from other constituencies has shot down many a deal that seemed pretty on paper.

Indeed, Delta's pilots union has already said it will fight Pardus' "poisonous vision" of a United merger.

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