Note to US Airways: Fix Labor Problems First

For a merger with United to occur, US Airways needs to address long-simmering labor issues.
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CHARLOTTE, N.C. (

TheStreet

) -- A merger between

US Airways

(LCC)

and

United

(UAUA)

would face big labor hurdles. But they would hardly be insurmountable.

Key union leaders are reluctant to pass judgments, claiming the carriers have so far failed to communicate with them. But the unions do not oppose a merger ipso facto. Even the most vexing labor problem this merger would face -- the lingering four-year seniority battle among US Airways pilots -- could potentially be resolved.

A key to that solution would involve US Airways management, which has so far refused to have anything to do with the seniority battle. CEO Doug Parker has repeatedly said it's an issue for the pilots to resolve. In the meantime, the battle has enabled the carrier to avoid making any improvements in the contract since the 2005 merger between US Airways and America West.

In 2007, US Airways offered to enhance a joint pilot contract by $122 million annually; that offer is still sitting there. As Parker said during an earnings conference call in April 2008, "We are not going to move the pay scales of one contract without having a combined contract."

Conceivably, to facilitate a merger, the airline could become involved in seeking to end the seniority conflict, in combination with enhancing the contract. "If they really want a deal, we need to be a partner in the deal," said James Ray, spokesman for the U.S. Airline Pilots Association. Ray said

Delta

(DAL) - Get Report

paved the way to a smooth merger with Northwest because "Delta went to the pilots and made them partners." A US Airways spokeswoman declined to comment.

To review, when the pilots from US Airways and America West failed to agree on a seniority list, they jointly chose an arbitrator and agreed to binding arbitration under an Air Line Pilots Association process. However, the arbitrator's ruling was so controversial that it caused US Airways pilots, who were in the majority, to vote ALPA out after 57 years and to replace it with USAPA. America West pilots were dragged into a union that nearly all of them opposed.

The reason for the inflamed passions can be illustrated by a single case, in which a 56-year-old pilot with 17 years at US Airways, never laid off, falls behind a 35-year-old America West pilot with a few months on the job. In hundreds of similar cases, US Airways pilots with 15 or more years at the carrier went behind America West pilots with just a few years.

Not surprisingly, the battle moved to the courts. In May, 2009, a Phoenix federal jury ruling against USAPA, which appealed to the Ninth Circuit Court of Appeals in San Francisco, which heard the case in December. A ruling is pending; both sides expect a victory. But the question remains whether any court can impose a solution, since any resolution must be part of a contract that would require membership approval.

In fact, a merger would require a seniority deal negotiated by two unions, USAPA at US Airways and ALPA at United. That deal would be governed by the 2007 McCaskill-Bond Senate legislation, which requires "fair and equitable" integration of seniority lists, meaning a labor standard known as the Allegheny-Mohawk provisions would take precedence over ALPA merger policy. The upshot is that seniority would have more importance than it did under the ALPA policy that applied to the US Airways/America West merger of two ALPA chapters. ALPA merger policy emphasized consideration of the airlines' relative financial conditions. A different approach could potentially diminish the case made by America West pilots.

Of course, once the seniority issues were determined, representation issues would remain. Currently, "there's nobody to sign an agreement" on behalf of pilots, said Bill Swelbar, research engineer at MIT. "That is a delay that was not present in the Delta/Northwest merger, where ALPA represented both sides."

No wonder Wendy Morse, chairman of the United ALPA chapter, is reluctant. "US Airways pilots face years of litigation as they attempt to work through their operational integration difficulties," Morse said Thursday, in a prepared statement. "United pilots certainly would not benefit by being drawn into that situation." By extension, if US Airways wants a merger, its management must step up to resolve its integration issues.

Meanwhile, other key unions are evaluating whether the merger chatter is real and what role they should play. Robert Roach, general vice president of the International Association of Machinists, said labor was not informed of the talks. "Something fell through the cracks," he said in an interview. "Normally we would get a call from the CEOs involved about something like this. So they are starting off on the wrong foot." The IAM is the largest airline union, with 14,500 members at United and 9,700 at US Airways.

In 2000, when US Airways sought to merge with United, the IAM was opposed because the carriers would not promise job protection. But Roach said the IAM is more far-reaching. "Certainly we need job protection, but we want to see the business plan," he said. "We want to see survivability, not just who is getting laid off, and we have a merger committee composed of lawyers and economists to do that. We want to make sure the camel doesn't die, because when the camel dies, we all walk."

The Association of Flight Attendants also represents both airlines, with 16,000 members at United and 6,300 at US Airways. In a statement Friday, leaders of the two chapters called the merger "absurd (because) the track record of management at each of our airlines is abysmal" with long-simmering issues and poor labor relations at both carriers.

Meanwhile, national AFA president Pat Friend said integrating three airline groups would pose problems, partially because US Airways and America West flight attendants do not yet have a joint contract. "There would be cultural differences between the three groups, some between United and the (original) US Airways groups," Friend said in an interview. "My guess is the America West group would feel really squeezed because they would have these two big guys leaning on them."

-- Written by Ted Reed in Charlotte, N.C.

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