Union Seeks Cost-Cutting Measures Outside of Pilots' Negotiated Contracts

The pilots union groups for Delta Connection regional carriers Comair and Atlantic Southeast Airlines (ASA) want to merge and are asking Delta Air Lines [NYSE: DAL] to consolidate the carriers, both wholly owned subsidiaries of Delta, into a single airline. The proposal came in response to the carriers seeking concessions from their pilots to bid for new "growth" jets from Delta Connection.

"This proposal is not something we take lightly, nor is it a consideration we developed overnight," Comair Capt. J.C. Lawson and ASA Capt. Bob Arnold wrote Dec. 8 to their member pilots in a letter obtained by CRAN. Lawson and Arnold are the chairmen of their carriers' Master Executive Councils (MECs) of the Air Line Pilots Association (ALPA), which represent the pilots. "In becoming a single carrier, ASA and Comair could realize economies of scale while eliminating some of its redundancies in its two infrastructures."

After Comair pilots and flight attendants declined company requests to renegotiate their contracts in early November, Delta Connection on Nov. 5 issued a request for proposals for the operation of 45 new 50-seat "growth" jets. Delta Connection plans to bring the new aircraft, the type of which was not specified, into service between 2005 and 2007. It opened bidding for the new business to its regional partners, with the exception of Atlantic Coast Airlines [Nasdaq: ACAI], which is pursuing a separate low-fare strategy, according to Tanya Wagner, a senior manager with Delta Connection.

The bids are due on Dec. 15, and Delta Connection will make a decision in the first quarter of 2004 on which regional carrier will win the contract, Wagner said. Delta Connection asked for bids from ASA, Comair, SkyWest Airlines [Nasdaq: SKYW], Chautauqua Airlines, Pinnacle Airlines, Mesa Airlines [Nasdaq: MESA], ExpressJet [NYSE: XJT], and Horizon Air, she said.

The request for proposals prompted Comair and ASA to open negotiations with their pilot groups to discuss cost-cutting measures to make their bids more attractive to Delta Connection. The pilot groups did not respond to the carriers' request, but instead proposed the merger of ASA and Comair and their respective pilot groups.

"Despite our profitability as independent carriers, we recognize that the Delta organization continues to suffer financial difficulties and struggles to find ways to make all of its components profitable again," Lawson and Arnold wrote. "However, our two collective bargaining agreements are extremely competitive by today's industry standards, and we believe that Delta management needs to look at a larger issue that would reduce our organization's expenditures and make us a more streamlined operation."

Nick Miller, a spokesman for Comair, and Kent Landers, a spokesman for ASA, told CRAN that neither airline has the authority to decide if the airlines or pilots groups should be merged. That would be a decision for Delta Connection, and Wagner told CRAN that "at this time we're not going to comment on it."

Without concessions from their pilots, ASA and Comair will have to submit bids for the growth aircraft as best they can. But there may be a last-ditch effort to try to persuade the pilots to make some concessions before the Dec. 15 deadline.

"Even without the necessary adjustments to the pilot and flight attendant costs, Comair would still try to submit a competitive bid," Miller said. "But it's unlikely that we would be able to compete seriously with those other carriers, especially those that have significantly lower costs in the critical areas.

"We will still try to submit a bid and see what we can accomplish. We'll keep trying, and part of our effort will be continuing to try to talk with our pilots and flight attendants to get this worked out in a very quick fashion. Time is short."

"The way ASA became involved in this is we proposed a two-year contract extension to ALPA that would, we believe, make our response [to the Delta Connection bid] more attractive," Landers said. "Then ALPA responded by proposing that ASA and Comair merge their seniority lists and companies, as well as the other provisions that they proposed.

"Since ALPA didn't address our offer to negotiate a contract extension, we have resumed our regularly scheduled negotiations for the current agreement."

ASA currently is in contract negotiations with its pilots, whose contract became amendable in September 2002. While the talks have gone on for more than a year, each side has bypassed the opportunity to enter into arbitration on several occasions, Landers said.

Lawson and Arnold indicated in their letter that their two pilot groups have been discussing a carrier and pilot group merger since 2000, when Comair joined ASA as a wholly owned subsidiary of Delta. The Comair and ASA operations complement one another because they feed the Delta mainline operation from the organization's largest hubs. They also cover point-to-point flying in surrounding markets, with limited overlap. In addition, the two airlines continue to grow, leading the union leadership to believe that there are plenty of flying opportunities to sustain both carriers and pilot groups.

Under the proposal, the unions said numerous ground and management positions could be consolidated and a portion of the cost savings could help fund new scheduling and operational automation, making the newly merged airline even more efficient.

Consolidating the two pilot groups also would help to limit Delta's "whipsawing efforts" to play one pilot group off the other, Lawson and Arnold wrote.

"This is not an emotional plea, but a logical business decision that the Delta organization must consider if it is sincere in its desire to limit costs," they wrote.

The Comair and ASA MECs met with ALPA representatives in Atlanta in the first week of December to consider the merger and how it could be implemented. They also passed a resolution setting the plan in motion. Lawson and Arnold also consulted with the Delta mainline MEC chairman, Capt. John Malone, who they said indicated support for their position. Malone reportedly told them that he intends to bring the consolidation proposal to the attention of the Delta MEC at the earliest opportunity.

"We are hopeful that Delta management will seriously consider this proposal and be open to exploring how it could benefit our organization as a whole," Lawson and Arnold told their pilots.

"At Comair, one of the prime focal points that we've always had, in addition to offering excellent customer service, is to offer a very reliable operation -- since it's one of the fundamentals of good customer service -- but do so at a very efficient cost," Miller said. "That's what we're constantly trying to drive for. We find that in today's market, we have to be competitive with the marketplace in order to succeed in our mission. Part of that mission is to win more growth so we can continue to offer job opportunities to our folks -- job security, all the positive things that come with that.

"Comair needs to be able to work successfully with pilot and flight attendant unions in order to submit a competitive bid [for the growth jets]," he said.

>>Contact: Tanya Wagner, Delta Connection, 404-715-2554; Nick Miller, Comair, 859-767-1500; Kent Landers, ASA, 404-766-1400; John Mazor, ALPA, 481-4440.<<