Pilots: Mergers must pay for us, too

John Prater, president of the Air Line Pilots Association (ALPA), said Wednesday that his union is prepared to derail airline mergers if executives fail to involve pilots at the outset of consolidation talks.

"We have told the managements and the investment community that if consolidation is going to happen, they must come to ALPA first," Prater said in an interview after speaking to Northwest Airlines pilot leaders in Bloomington.

"We can make [mergers] work, or we can destroy them," Prater said. "We are interested in mergers that form solid and profitable, long-term companies, not ones that just create a transaction so that the investors can cash out."

In his speech to the Northwest pilots, Prater said he talked about "the pitfalls of allowing management to create a US Airways-America West scenario."

In that case, he said, the executives pressed ahead with a merger and "refused pay parity" for the combined pilot group.

In a merger involving ALPA pilots, Prater said that he will insist on "recovery from the bankruptcy era." He said that pilots will expect improvements in their pensions, work rules, wages and job protection.

"We will take the opportunity to help provide strong companies, but it's not going to be based upon the backs of cheap pilots," Prater said.

At Eagan-based Northwest, CEO Doug Steenland said in October that the carrier is evaluating merger scenarios, but it has not signaled whether it will initiate a deal.

Dave Stevens, chairman of the Northwest pilots union, said Wednesday that the pilots prefer that the airline remain independent and grow through alliances.

However, if a merger develops at Northwest, Stevens said that he has told Steenland and Board Chairman Roy Bostock that the pilots must benefit from the "value creation." The pilots would demand equity in the new company as well as contract improvements. Northwest pilots ratified two pay cuts -- 15 percent and 23.9 percent -- and agreed to other contract changes in bankruptcy that are saving Northwest more than $600 million a year in pilot costs.

Stevens said that a much broader constituency than the Northwest pilots would be affected by "who buys and who sells" in an industry consolidation. "Employees, passengers, and the state [of Minnesota] should all be concerned about what consolidation means," he said.

If Northwest is acquired, many observers believe the buyer would retain its headquarters and phase out Northwest's. The status of Northwest's three hubs -- the Twin Cities, Detroit and Memphis -- also would be weighed.

Pressure for deals continues to build as stock values languish. On Wednesday, Morgan Stanley downgraded several airline stocks and forecast "tough times" for the industry in 2008 because of high oil prices and a weak economy. Among the big six network carriers, stock prices fell in a range of 6 to 13 percent. Northwest's stock closed at $16.20, down $1.51, or 8.5 percent.

Pardus Capital Management, a New York hedge fund, tried to ignite a round of industry consolidation in mid-November when it called for Delta to merge with United Airlines. The Delta pilots union, which helped kill a hostile takeover by US Airways in January, criticized the hedge fund's attempt to push Delta and United into a quick deal.

Steve Derebey, a United pilot and union spokesman, said Wednesday that if any entity tries to force a transaction on the pilots "you'd see a marked and hostile reaction."

"We could ensure that a merger would fail," he added.

United CEO Glenn Tilton has spoken frequently in favor of a United merger, but Derebey said the pilots union would "like to see United compete in this industry on its own."

"We have the infrastructure, the route structure and the employees to operate a world-class airline," he said. "It certainly would be helpful if we had a world-class management that would be interested in operating a world-class airline."

He said that the United pilots aren't concerned that Gordon Bethune, former Continental chief executive, is providing advice to the Pardus hedge fund. "He has every right to say what he wants. It carries no weight with our union, what Gordon Bethune's opinions are."

Liz Fedor • 612-673-7709