US Air's Integration Hurdles

The bright side of a failed Delta bid is that it can focus on challenges of digesting America West.
Author:
Publish date:

Say this for Doug Parker's failed effort to merge US Airways (LCC) and Delta (DALRQ) : At least it only took two-and-a-half months to collapse.

That means Parker, US Airways' CEO, is in a better position to resume running the airline than former chairman Stephen Wolf was after a failed merger attempt with

United

, owned by

UAL Corp.

(UAUA)

. That deal, announced in 2000, took 14 months to fall apart. During the merger effort, airline executives said they had no Plan B if it failed.

Parker, by contrast, has said he would be happy to return to running the airline, where job one will be to complete the merger between US Airways and America West Airlines. Though the two corporations combined when the former US Airways emerged from bankruptcy protection in September 2005, much work remains.

The failure to reach new contract agreements with three key labor groups -- the delay has led two unions to sue the airline this week -- is perhaps the most visible indication that the job is incomplete. But it is not the only one.

Seeking Synthesis

This coming weekend, for instance, US Airways intends to combine its two reservations systems. The transition is scheduled for Sunday morning, between 2 a.m. and 4 a.m. EST. During that period, no tickets can be sold and agents will manually check in passengers on the few operating flights.

The airline expects a trouble-free transition. But employees of the former US Airways remember the December 1998 changeover from in-house computer systems to the Sabre system now being replaced. The switch brought periodic flight delays and cancellations that continued for months; unanticipated costs lingered into the second quarter of 1999.

Most ongoing merger work is less visible. For instance, the new US Airways wants to add seats on 20 Airbus A320s operated by the old US Airways so that the seat configuration matches America West's A320s. "Everything has to be the same for us to go to one certificate," says US Airways spokesman Phil Gee. But the changes are creating problems, says Mike Flores, president of the US Airways chapter of the Association of Flight Attendants.

A few months ago, to create space for more seats, the airline decided to remove valet cabinets at the front of the A320s. Besides passenger coats, the cabinets house fire extinguishers, oxygen bottles, portable breathing equipment and components for the in-flight entertainment system. The plan was to move these fixtures to the overhead bins in first class.

This plan had an obvious flaw: It denied bin space to first-class passengers. "We yelled and screamed, 'This will not work,' but no one paid attention," Flores says. "They started the work. Then, when they realized we were right, they had to go in and reconfigure it." The reconfiguration, now under way, means equipment will be stored by the panels separating first and coach class.

Flores says the incident exposes systemic merger problems.

The new US Airways is dismantling aspects of the old one, he said, because an airline that was principally a leisure carrier took over one with many business flyers. "The new motto is profit before comfort," Flores says. The transition is challenging. "They break everything they touch, from catering to seating configurations to coordinating between departments, and they have to fix it again," he says. "But they run on such a lean management staff that they can't get it done."

Gee says US Airways is taking advantage of an opportunity to select best practices from two carriers. "When you do that, some people aren't going to be happy," he says. "People are resistant to change." In previous mergers, acquirer US Air simply imposed its practices on Piedmont and PSA. In the current merger, by contrast, "there is an opportunity to choose," Gee says.

Worker Woes

Meanwhile, progress has been minimal in efforts to negotiate new contracts for pilots, flight attendants, mechanics and fleet service workers. Comprehensive contracts, covering workers from both carriers, would undoubtedly increase costs.

Parker has repeatedly said the airline can operate without comprehensive contracts, even after it secures a single operating certificate, expected in the second quarter. Unions disagree. "He's got two separate groups of pilots flying two separate groups of airplanes, so basically he's running two airlines," says Arnie Gentile, spokesman for the US Airways chapter of the Air Line Pilots Association. "Putting them together depends on our contract."

On Wednesday,

pilots filed a suit contending that the airline can't legally merge operations, including the reservations system, until a single comprehensive contract is signed. Pilots followed the International Association of Machinists, which filed a suit Monday.

The IAM case results from a contract provision that a change of control would trigger wage increases. When that did not occur after the merger, the union filed a grievance, which was scheduled to be heard Feb. 26. When the company asked the bankruptcy court to block the grievance hearing, the union sued. "You can't run into court every time you have a contract dispute," says union spokesman Joe Tiberi.

Gee says the airline realized, as it prepared for the hearing, that the issue should be resolved in court. But Gentile argues that US Airways has fallen into a pattern "of overlooking contracts and trying to set its own rules." As a result, he says, "This merger is nowhere near completed."