US Airways:Pilot Contract Threatens Merger

US Airways CEO Doug Parker recently told pilots that a contract provision could prevent a merger.
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US Airways story updated with union comments and the company's traffic report.

CHARLOTTE, N.C. (

TheStreet

) -- Although US Airways is clearly eager to merge with another carrier, its efforts could be blocked by a provision in its pilots contract, says CEO Doug Parker.

Speaking to pilots at a March 17 meeting in the company's Charlotte training center, Parker reflected on a contract provision requiring that if the airline has a change of control, pilot wages would "snap back" to a far higher level that was in place before the carrier extracted wage concessions in two bankruptcies in 2002 and 2004.

"We've had talks with airlines in the past," Parker said. "This (provision) always comes up. (It) is a large issue in consolidation talks. There will not be a merger if that's where the pay rates go. Anybody we would merge with can't let the pay rates go to those levels."

"You can't have both," Parker added. "You can't have a merger with that provision. (It) will either result in a merger never being done or it will be a merger that doesn't trigger that provision."

Parker said he was raising the issue because he recently received a couple of notes from pilots referring to the contract provision, which requires "a very, very high snapback." He indicated that he raised the issue because he did not want some pilots to have the erroneous view that a merger would definitively lead to higher wages.

Scott Theuer, spokesman for the U.S. Airline Pilots Association, said Tuesday that "nothing in the pilot contract blocks a transaction." Theuer said the contract provision, negotiated as the carrier prepared to enter the 2002 bankruptcy, was intended to compensate pilots in the event that bankruptcy-linked concessions led to a successful outcome.

"The company agreed to a provision which brings our pay back to where it should be," he said. "Now the company says it is either not going to merge or it is going to merge and make sure we do not get what we negotiated."

Earlier, in an April 1 letter to pilots, USAPA president Mike Cleary blasted Parker's remarks. "Now that the company is in a position where it may find a merger beneficial, it is ironic indeed that our CEO touts his willingness to deprive us of previously bargained-for provisions that were put in place specifically for a merger event," he said.

Parker has been one of the industry's leading advocates for consolidation. Following the success of the 2005 US Airways/America West merger, he unsuccessfully pursued a hostile takeover of

Delta

(DAL) - Get Report

.

Subsequently, US Airways

discussed a merger with

United

(UAUA)

in 2006.

Speculation continues over whether the carrier might merge with United, a Star alliance partner, or with

American

(AMR)

. Primary assets include the US Airways hub in Charlotte -- the only Southeast hub other than Atlanta -- and a strong presence at both Washington Reagan National Airport and Philadelphia International Airport.

Meanwhile, US Airways reported strong March traffic results on Monday, saying that consolidated passenger revenue per available seat mile grew approximately 18%. "The positive momentum that we have seen in the revenue environment has continued with particularly strong year-over-year growth in booked yields," said President Scott Kirby, in a prepared statement.

JP Morgan analyst Jamie Baker said the increase should result in "a slightly narrower first-quarter loss" than what he had originally expected. Baker reduced his estimated loss to 73 cents from 80 cents. Analysts surveyed by Thomson Reuters are estimating a loss of 70 cents.

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