Four Things to Know About Airline Mergers

The Business Press Maven, a father of three, has been reading a book on how to raise defiant children. The book advises parents to essentially ignore acts of defiance and forge on.

Delta (DAL Quote - Cramer on DAL - Stock Picks) and Northwest (NWA Quote - Cramer on NWA - Stock Picks), employers of a combined 11,000 pilots, appear to be reading the same book. They are apparently ignoring an act of defiance from their irascible little pilots in an attempt to forge on with their merger talk.

Everything written about the fate of the proposed merger, which has been reported on widely, has to factor into what happens when you court a powerful constituency and then ignore them when they don't do what you want.

They Just Don't Get Airline Mergers!

This could get messy -- very messy.

In trying to lay the groundwork for an acquisition, Delta and Northwest tried to get their pilots to make nice and agree on terms like seniority before formally going ahead with the merger deal. They thought this would help with everything from negotiations with other constituencies to regulators, but it failed miserably.

This shouldn't surprise you. Writing back in January about the bull market in airline merger rumors and how poorly the mergers ultimately turn out, The Business Press Maven spoke about the difficulty of getting pilots to make nice in these circumstances. Piloting is, after all, an ego-driven profession, and getting one large group of egotists to skip rope with another over matters of prestige and money is never an easy task. Someone tends to get garroted by the skip rope. Or, at least, they imagine this will happen.

In response, a lot of pilots wrote to tell me what an effete profession I was in. To which I say: I resemble that remark. It does bear mentioning, though, that I'm a volunteer firefighter in a department with several houses. Whenever talks about merging into one larger house crop up, they fall apart amid tribalism and recrimination. There is something about the nature of ego-driven professions (paid or not) that attracts large personalities and leads to rivalrous negotiations.

The pilots -- no surprise -- could not play nice. And now, after they failed to reach an agreement, the airlines are moving forward, ignoring the pilots altogether. Worse than giving the pilots a chance to work things out beforehand is giving them a chance and ignoring the result.

Investors must view this proposed merger first and foremost through the lens of this failure and subsequent slight. Financial desperation and the long history of airline mergers failing long-term are a close second and third concerns, along with the need to get the deal done before President Bush leaves office. The pressure is clearly on this pressure-packed situation.

Writing an article about the proposed merger that doesn't address these four factors is akin to flying without a navigation plan.

In an article titled "Northwest proceeding on merger despite unions," The Financial Times mentions nothing of the changing of the guard in regulators, though it mentions the other three factors.