Delta Merger? Only If Lee Moak Says So

Underestimating the power of the pilots' union leader would be a serious mistake.
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ATLANTA -- If there's going to be consolidation in the airline industry, it most likely will have to go right through Lee Moak, and he's not going to make it easy.

Moak, the powerful chairman of the

Delta

(DAL) - Get Report

chapter of the Air Line Pilots Association union, recently discussed mergers before about two dozen Delta pilot union leaders at an Atlanta hotel.

"Delta pilots are open to it, and we are going to be relevant to the process," he said. "We will be at the table. We will be involved. And without us, it will not happen." Pilots can ensure a beneficial outcome because Delta has become the likely "first mover," he noted.

Contrast that with the rest of the industry: American Airlines parent

AMR

(AMR)

and

Northwest

(NWA)

, a likely acquiree, probably won't start the ball rolling.

UAL

(UAUA)

, the owner of United, can't find a partner.

U.S. Airways

(LCC)

tried to make a deal and failed.

And

Continental

(CAL) - Get Report

is under the yoke of Northwest, which owns a big stake in its fellow carrier and can block any bid.

Moak is not a person one would select as an opponent. In his second two-year term as chief of the 7,000-member local, he is a compelling leader -- tough, rational and calculating. It is a combination not always seen in union leaders or, for that matter, in airline executives.

At the union meeting, Moak, wearing a starched white shirt, sketched out his view of the industry. An ex-Marine who is the son of a Marine, he did not hesitate to invoke his Corps pedigree. He also invoked his time as a Little League coach, indicating his disdain for the prevailing concept that every kid must play, no matter how good or bad he is.

To Moak, the concept is a metaphor for weakness and whining, which are displayed when pilots complain rather than act. "We need to improve the pay and working conditions of Delta pilots," he remarked. "We're not about letting Johnny play, letting Johnny go to bat. We can't do that."

Moak has been willing to partner with Delta executives in times of mutual interest. Most dramatically, he and former CEO Jerry Grinstein jointly battled a hostile takeover effort by U.S. Airways that began late in 2006.

Pilots were instrumental in assuring Congressional and public support for an independent Delta, spending $2 million for lobbying, antitrust counsel and a public-relations effort. If the battle were to last longer, they had authorized $15 million more.

Since then, Delta has settled every outstanding pilot grievance, resulting in a $30 million payoff for pilots. In Delta's bankruptcy, concluded in April, pilots received $1.9 billion in claims and notes, more than their counterparts at any other airline.

A close relationship with management is not the norm for pilots today. "I'm the black sheep of the legacy family right now," Moak acknowledges. But his backers include Jack Stephan, chairman of the ALPA chapter at US Airways, who calls Moak "a grass roots guy and a pilot's pilot."

Moak and Stephan became friends in 1996. Both were former military pilots who became strike chairmen, and Stephan came to Atlanta to assist in Delta strike preparations. At the time, many Delta pilots were uncomfortable with the concept.

"Lee had a difficult job, kind of an ugly job, and he handled it well," Stephan said. The straight-laced Moak called Stephan, whose hair was long at the time, "pulp fiction." Moak, by contrast, "always looked like a Marine," Stephan said.

Says aviation consultant Robert Mann: "When Moak first came aboard as chairman, he was viewed as far more antimanagement than the guy he followed, but over time he has forged a good dialogue with management. You don't see that elsewhere, except at Continental."

Moak calls his relationship with Grinstein "a roller coaster." The low came in the spring of 2006, when Delta pilots threatened to strike during bitter contract talks. Six months later, when the U.S. Airways bid was unveiled, "pilots decided it was not rational, and I went in and told

Grinstein that," Moak recalled in an interview. "He said 'I understand.' He didn't say anything more because the creditors committee hadn't made a decision yet." So pilots took the lead.

As for Richard Anderson, who took over as CEO in September, Moak says his actions have backed up his words. "And we're aligned on certain issues, but I'm always aware that our paths could diverge at some point," he says. The current pilot contract can be amended in 2010.

Moak doesn't confine himself to airline engagements. He and other union officials have made 500 visits to Capitol Hill, lobbying for pilot causes. He has met with Pension Benefit Guaranty Corp. officials, seeking to boost pension payments for Delta pilots. And he has met with hedge fund managers who, as of Sept. 30, held 17% of Delta's stock and are pushing for industry consolidation.

"We want to meet with everyone who owns Delta stock," Moak says. "To not do that would be irresponsible."

Moak is not fond of hedge funds. He describes their managers as "tough guys, who cuss more than a sailor on liberty, have a lot of passion and testosterone, and

who say 'we're going to make money and kill everybody.'" He told pilots: "They don't fly Delta. They don't care about you. They care about money."

He described a November meeting with Pardus Capital Management, which has called for a merger of Delta and United. "At the meeting they said, 'You have 90 days. You have to get these airlines merged in 90 days,'" Moak said. "And I just started laughing."