Northwest's Pyrrhic Victory?

Over the weekend, The Wall Street Journal reported that executives at Northwest Airlines (NYSE: NWA  ) are still pushing for a merger with peer Delta (NYSE: DAL  ) , even if it means their pilots were to lose their seniority -- and thereby, a number of other promised benefits.

Talk about a dumb idea.

Don't get me wrong; I'm a capitalist, and unabashedly so. But the Journal report, if true, reeks of desperation. It's almost as if Northwest management so fears another journey into Chapter 11 bankruptcy that it'll destroy the airline to, uh, keep from destroying the airline.

Destroy the airlines?
Unions -- love 'em or loathe 'em -- have broad authority when it comes to the airline business. Only carriers that deal fairly with their people have a prayer of producing long-term profit.

Delta and Northwest know this. But the Journal report suggests that upon the completion of a merger, Northwest's 5,000 pilots would mostly fall behind their new peers in terms of seniority, benefits, and worst of all, pay. (The average Delta pilot is paid more than the average Northwest pilot, according to the Journal.)

At issue is what's called a "seniority list," whereby pilots are ranked according to their time with the company. Every major carrier has one. Seniority plays a key role in determining assignments, time off, and other benefits.

Pilots at Delta and Northwest have been unable to agree on terms for combining seniority lists. Apparently, Delta's fliers fear that they'll forfeit much of what they've earned at the bargaining table, as well as opportunities for career advancement. No doubt that's true. But what's the alternative? Not broker a deal and suffer in solitude?

We don't really need you
I'm not entirely sure whether the fears of Delta's pilots are justified. But certainly, Northwest's fliers have something to fear. History has been unkind to acquired carriers. TWA, for example. AMR (NYSE: AMR  ) spent $500 million for the carrier in 2001. Employees of beleaguered Trans World lost much of their seniority, and the benefits that came with it.

The ensuing fight got so ugly that the Senate held a hearing on the matter in 2003 -- the same year that American narrowly avoided bankruptcy. Yet little has changed since. A simple Web search will direct you to more than a few sites where former TWA employees vent their frustration as they pledge to help each other.

To be fair, neither Delta nor Northwest is under any obligation to get its pilots to agree to a combined seniority list. But without one, the chances of this deal resembling the American-TWA debacle increase dramatically.

A little more history
Let's not forget that Northwest already has a reputation for union-busting. A 2005 mechanics' strike mostly failed after management called in line-crossers and contractors to replace its 4,000 workers. A 2006 tete-a-tete with pilots nearly ended in disaster.

Will Northwest employees tolerate still more cuts? I doubt it. At some point, enough will very likely be enough.

That's the lesson of history. Unions rarely take to scorched-earth policies, but the territorial nature of the airline business has led to fistfights at the new US Airways (NYSE: LCC  ) and finger-pointing at United Airlines parent UAL (Nasdaq: UAUA  ) .

How about we prevent such a mess this time, Northwest? Take a lesson from master investor Philip Fisher instead, who asks in his famous 15 points whether a prospective investment has "outstanding labor and personnel relations."

He wrote that for a reason, sirs. Happy employees make for a healthy business. There's still time for you to have both -- but only if you abandon your merge-at-all-costs strategy. That way a Pyrrhic, and perhaps fatal, victory lies.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 611183, ~/Articles/ArticleHandler.aspx, 9/1/2014 11:22:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement