This paper examines one major merger and one great acquisition in the American aviation industry, which took place in the first decade of this millennium. Based on the examples of American Airlines, Inc. (AA) purchase of Trans World Airlines (TWA) in 2001 as well as the recent merger of Delta Airlines, Inc. with Northwest Airlines, Inc. in 2009 this essay will analyze the experiences of the individual airlines before, during and after the restructuring. Special focus in this comparative analysis lies on the changes of employment relationships and their influence on the prosperity of the companies. The initial brief summary of the history of each of the 4 stated US American airlines and their path which lead them to this step, will be followed by an examination of the institutional frameworks and competitive circumstances which determined their industrial relations strategies. Convenient for this comparison is the fact that the acquisition as well as the merger both meant a great shift in the overall North American airline industry. American Airlines decision to acquire the ailing Trans World Airlines strengthened its position as the second largest US carrier despite the economic effects of 9/11 during this time. Similarly Delta and Northwest joined forces to overcome the global economic crisis and formed the world´s largest commercial carrier (Delta History).
2. History of The Airlines & Unions
2.1.1. American Airlines
Starting out with the individual historical background will set the fundamental basis for understanding which events led to these drastic measures. American Airlines Inc. was formed in 1930 as a consolidation of several airlines from the Midwest and eastern USA, (American Airlines History) with its base in Fort Worth, Texas. Starting international operations in the 1940´s American Airlines, under the guidance of Cyrus Rowlett Smith, consistently grew to become the second largest airline in the world. During World War II the DC-3 fleet was split in two to serve as a military airline and operate within the United States simultaneously. Entering the age of jet engine aircrafts AA emerged as a forerunner in several areas of operation, for example connecting the European and North American mainland and introducing the first electronic booking system. The 1960´s and 1970´s were shaped by America's expansionary politics and the exponential economic growth. Gradually American Airlines product became more differentiated in order to compete with the principal US carrier Pan American World Airways. This rivalry lead to the expansionary policies of the 1980´s and early 90´s, operating with its new hub-and-spoke system from DFW in Dallas and Chicago O´Hare. Purchasing Air California, Reno Air, routes from Eastern Air Lines and TWA´s assets in London were milestones which consolidated AA´s role within the domestic market and stabilized its international role with its new hub in London Heathrow. This period was mainly shaped by Americans president Robert Crandall with his individual attitude towards management "I'm an airline manager. I don't invest in airlines. And I always said to the employees of American, 'This is not an appropriate investment. It's a great place to work and it's a great company that does important work. But airlines are not an investment" (A Conversation with Robert L. Crandall). In September of 1998 and four other international carriers announced a new customer driven alliance called oneworld, this multi-million dollar program raised the standard of global air travel. In 2001 Donald J. Carty became new head of the company and purchased Trans World Airlines which immediately widened American Airlines range of influence on the aviation market. Struggling with the attacks of 9/11 in which 2 planes were involved and the resulting economic downturn, AA implemented cost cutting programs and standardized the fleets at each Hub. During the last 5 years AA has expanded into the Asian market with special focus on Chinas mainland. Gradually the maintenance, cabin and ground staff was reduced in order to compete with national and international carriers. Today American Airlines combined with its subsidiary American Eagle, the regional carrier, have a shared fleet of 890 aircrafts with 59 ordered. Globally 260 destinations are served out of 4 Hubs in the US with approximately 85.000 employees. The operating income in 2008 was 1.71 Billion, which was an obvious sign for a downturn.
American Airlines
American Eagle
Boeing 777
47
Super ATR
39
Airbus 300-605R
23
Embraer 145
108
Boeing 767-323ER
58
Embraer 140
59
Boeing 767-223ER
15
Embraer 135
39
Boeing 757-223
124
CRJ 700
25
Boeing 737-800
81
MD -80
272
Total
620
Total
270
2.1.2. The Unions
The employees of American Airlines are mainly represented according to their field of operation in to one of the 3 main unions.
The Transport Workers Union of America (TWU) is the largest representative labor union which was formed in 1934 by subway workers in New York City. Workers from all areas of the US transportation system meaning railway, bus and air transportation joined together in order to push through their measures. Today the TWU consists of 130.000 transit workers, in the field of aviation ground service employees, maintenance workers, flight attendants and other employees make up the majority (Our Union). About 10.600 of American Airlines employees are organized in the TWU (TWU withdraws its tentative agreement for American Airlines ground workers?). Since 2006 James C. Little is the president of the TWU, his main task is to strengthen the unions influence on Washington.
The Association of Professional Flight Attendants (APFA) was certified as recognized bargaining agent in 1977 and solely serves flight attendants of American Airlines. This union has 19.900 US based members and is headquartered in Euless, Texas. APFA is the last remaining independent flight attendant union in the United States which fights for wage increases, higher pensions as well as job security (Code of Conduct).
The Allied Pilots Association (APA) was founded in 1963 and still remains the certified collective bargaining agent of all American Airlines pilots. Currently it counts 11.500 members which simultaneously makes it the largest independent pilot union in the world. Even though it is located in Fort Worth, Texas the main focus of the union is to lobby in the United States Congress and other government agencies (About the Allied Pilots Association).
2.2.1. Trans World Airlines
Founded on October 1, 1930 when Transcontinental Air Transport and Western Air Express merged to become TWA. The first headquarter was set up in Kansas City, Missouri. Setting new standards in the industry TWA introduced the DC series which eventually was relieved by the constellation which let the airline emerge to as a major carrier. In 1940 Howard Hughes acquired control of the airline with his share of 78% and led TWA during the following 25 years into the age of jet aircrafts. Pan America World Airways legal designation to be the sole US carrier on international routes was broken. Trans World Airlines opened up the North Atlantic route and served European destinations. During the 60´s it became the United States first all jet airline. It peaked in the 1980´s when it carried 50% of all transatlantic passengers. During this period Carl Icahn bought the airline and became chairman, the 90´s were shaped by his persona. Management of TWA filed for Chapter 11 in 1992 as well as 1995 due to mismanagement but was able to recover. The employees of TWA acquired 45% of the company, whereas the remaining 55% was owned by the creditors. On July 16, 1996 TWA flight 800 exploded in mid air killing 230 people on board, hyping the fact that TWAs fleet was the oldest in services at that time. The airline reacted by ordering 125 new aircraft, implementing a new domestic network and changing the international routing. Financial bottlenecks led to the AMR Corporation´s decision to buy TWA in total, AMR Corp. is also the owner of American Airlines. Being hit by the 9/11 recession in 2001, transformation was promoted and the last flight under the TWA flag was operated on December 1, 2001 (Milestones in TWA History). When TWA ceased operations it operated out of 4 Hubs and served 132 destinations with its fleet of 186 aircrafts.
Trans World Airlines
Boeing 757-200
27
Boeing 767-200/300
23
McDonnell Douglas MD-81
8
McDonnell Douglas MD-82
33
McDonnell Douglas MD-83
66
Boeing 717
29
Total
186
2.2.2. The Unions
The Independent Federation of Flight Attendants (IFFA) was certified on April 1. 1977 and represented a mainly feminine focused representation of its members. It officially ended with the acquisition of American Airlines in 2001.
The Air Line Pilots Association, International (ALPA) was organized in 1931 and is situated in Washington. This union is the collective bargaining representative of approximately 66.000 pilots of 42 US American and Canadian airlines. In the year 2001, Bob Pastore was the chairman of the TWA ALPA Master Executive Council which represented 2.300 of TWAs pilots. During the 90`s ALPA had already accepted 600 million dollars in concessions in order to keep TWA competitive (Our History).
The International Association of Machinists (IAM) was formed in the year 1888 and has approximately 645.000 members within the US. The goals in aviation are to raise wages, social security benefits, equal pay for all employees, a safe & healthy workplace, restrictions on subcontracting (Goals of the IAM). IAM represented about 16.000 of TWAs 20.000 mechanics, ground workers and flight attendants. During the acquisition William O´Driscoll was president of the chapter and heavily fought the conditions which American Airlines dictated on TWAs employees
(Talks collapse between TWA, machinists union; strike possible).
The International Association of Machinists also joined forces with the Transport Workers Union of America (TWU) which is also represented among the American Airlines employees.
2.3.1. Delta Air Lines, Inc.
Delta Air Lines was founded in 1928, with focus on airmail and subsequently started transporting passengers. The headquarter was set in Atlanta, Georgia and Delta consistently grew during the decades. During the 1970´s the transition from propeller to jet planes took place which had an immediate effect when the airline entered into the North Atlantic competition to Europe. Later the routes to Asia via the Pacific were opened. Delta Air Lines expanded its international role when it purchased Pan American World Airways European routes after the bankruptcy in the 90´s. During the last decade of operation, focus was set on the routes to Asia, especially China. In 2004 for the first time came near bankruptcy and introduced heavy cost cutting programs, this meant the closure of one of the main Hubs in Dallas/ Fort Worth, an aggressive expansion policy in Atlanta and a massive downsizing of about 1000 jobs. Labor costs as well as the massive increase in fuel prices lead to the management's decision to file for Chapter 11 in 2005. This eventually led to even more drastic measures of cost reduction and the idea of being sold to US Airways, which could be avoided. Eventually Delta Air Lines emerged from bankruptcy protection in 2007 and decided to merge with Northwest Airlines in 2008. The merger was completed on January 31, 2010 which resulted in a common fleet of 786 aircraft, 10 domestic and international hubs, 375 destinations and 8 billion dollars in enterprise value. The decisions of management on both airline sides in order to meet this highly competitive and kerosene wise fragile market, resulted in the creation of the world's largest airline.
Delta Air Lines
Aircraft Type
Total
Ordered
Airbus 319-100
57
5
Airbus 320-100
69
2
Airbus 330-200
11
Airbus 330-300
21
Boeing 737-700
10
Boeing 737-800
71
2
Boeing 747-400
16
Boeing 757-200
176
Boeing 757-300
16
Boeing 767-300
69
Boeing 767-400
21
Boeing 777-200
18
Boeing 787-800
18
McDonnell Douglas DC-9-30
16
McDonnell Douglas DC-9-40
7
McDonnell Douglas DC-9-30
34
McDonnell Douglas MD-88
117
McDonnell Douglas MD-90
21
7
Total
737
34
2.3.2. The Unions
Interesting about the labor relations within Delta is that only the Pilots are represented by ALPA and the dispatchers are represented by PAFCA, whereas the entire remaining workforce of delta is non-union (Mixed Ruling on Delta Unions` Status). The DELTA AFA only represents a fraction of the active Delta flight attendance. (About Our Campaign).
As mentioned earlier ALPA is the Air Line Pilots Association, International which was organized in 1931 and is situated in Washington. This union is the collective bargaining representative of approximately 66.000 pilots of 42 US American and Canadian airlines. Deltas 7.000 pilots have been members since 1940 and approximately 12.400 of Deltas pilots are organized within this union at present (Pilot Seniority Clash Holds Up Merger).
The Professional Airline Flight Control Association (PAFCA) was established in 1971 and serves the purpose of representing deltas 180 flight dispatchers. Main tasks are to improve the working conditions, wage scales, work cycles, schedules, fight against discrimination and be represented before federal agencies.
2.4.1. Northwest Airlines
Founded in 1926 NWA quickly grew to one of the largest US carriers. In the early 50´s the airline already dominated on the Asian routes with focus on Japan, Korea, China, the Philippines, Thailand and Vietnam. In the mid 80´s Northwest Airlines gradually entered the North Atlantic competition to Europe. NWA almost faced bankruptcy in 1990 due to the Gulf War in middle east. Beginning of this decade the airline refocused on its original markets in Asia and gradually reduced its routes to Europe. The aftermath of 9/11 completely changed the business structure causing massive employee layoffs, new cost cutting programs and the disposal of aircrafts which eventually lead to application for Chapter 11 bankruptcy protection in 2004. Similarly to the other major 4 US carriers NWA was cleared in 2007 of the Chapter 11 bankruptcy protection. During the years several other airlines entered the Northwest family including Republic Airlines, North Central Airlines, Southern Airways and Hughes Airwest. (NWA History Centre). Before the merger with Delta, Northwest already was the fourth largest airline in the world with Hubs in Detroit, Minneapolis, Memphis, Tokyo, Amsterdam and about 1.700 daily departures. The network served about 750 cities in 120 countries with 45.000 employees worldwide. Having to adapt Deltas name and the brand image, NWAs last official flight was operated in January of 2010. Merging with Delta secures both airlines in these economic tough times and results in a certain pride when being part of the largest airline in the world.
Northwest Airlines, Inc.
Aircraft Type
Total
Ordered
Airbus 319-100
57
5
Airbus 320-100
69
2
Airbus 330-200
11
Airbus 330-300
21
Boeing 747-200
17
Boeing 747-400
16
Boeing 757-200
45
Boeing 757-300
16
Boeing 787-800
18
McDonnell Douglas DC-9-30
27
McDonnell Douglas DC-9-40
7
McDonnell Douglas DC-9-30
34
Total
737
34
2.4.2. The Unions
The Aircraft Mechanics Fraternal Association (AMFA) was organized in the year 1962 and since then only represented airline technicians and related employees. It is an independent aviation union which goal is to elevate the professional standing of the airline employees. With its 3.900 members in this field of operation it used to be a serious opponent to the airlines until a major strike against Northwest Airlines was lost in 2006. AMFA fights for progressive improvements in wages, benefits, working conditions and overall aspires to protect the profession. This union considers itself to be the most democratic union within the airline industry. "Except for negotiations under bankruptcy, AMFA has never accepted concessions, give-backs, two-tier pay scales, or "B" rate mechanics." (About AMFA)
The Air Line Pilots Association, International (ALPA) represented roughly 5.000 of Northwest's Pilots and had a major influence on the merger talks as sole union representing the cockpit crews (Pilot Seniority Clash Holds Up Merger).
The NWA AFA is a subsidiary of the Association of Flight Attendants which entered the stage in 1947 when the first legally binding contract was signed by Northwest Airlines. Due to the merger the DELTA AFA and NWA AFA have joined forces to build up a major unionized share of the new Delta enterprise (Celebrating Our Tradition of Representation).
The International Association of Machinists and Aerospace Workers (IAM district 143) represents approximately 15.000 members from several larger airlines, among those was Northwest Airlines. District 143 negotiated on behalf of IAM and organized votes of District Officers and collective bargaining agreements (About Us).
The Transport Workers Union (TWU) represented about 160 flight dispatchers of Northwest working in Minneapolis/ St. Paul.
During the years 2003 and 2006 the Professional Flight Attendants Association (PFAA) was elected by 10.000 flight attendants to be the primary bargaining agent. After 26 years of union work It was exchanged by the AFA to increase the bargaining power. The PFAA was mainly active during the period of NWAs filing for Chapter 11 (Professional Flight Attendants Association).
The Northwest Airlines Meteorology Association (NAMA) is a small union meteorologists within NWA which fought for job security, wages increases, social benefits and against outsourcing (Transport Workers Union Ratifies Agreement with Northwest Airlines).
3. Impact of the M&A on company-level industrial relations
3.1. The Acquisition: AA & TWA
Trans World Airlines reached a point in 2001 where could not successfully compete in the airline industry anymore. Rising fuel cost, increasing labor cost, the explosion of Flight 800 in mid air, having the oldest fleet I the industry and the image loss inevitably lead to the bankruptcy of TWA. In April of 2001 American Airlines, even though ailing itself at the time integrated the entire fleet and promised to take over the complete former staff of TWA. The agreement involved TWA´s filing for Chapter 11, for third time in its history, in exchange the owner of American Airlines, the AMR Corporation, paid 500 million for the purchase. Overall it is estimated the AMR Corporation paid around 2 billion USD for the acquisition. Booking ended in November of 2001, followed by the last operated TWA flight on December 1, 2001. Donald J. Carty the CEO of the AMR Corporation at the time initiated the transaction. The Talks between the AMR management side, APA (The Allied Pilots Association) on American Airlines side and ALPA (The Air Line Pilots Association, International) of former TWA ended with approximately 60% of the TWA pilots moving to the bottom of the seniority list of AA and many of the cockpit crew were furloughed for good. Only the senior pilots were taken over whereas the younger ones still are not employed up until today. The 9/11 effects ultimately resulted in an even harsher downsizing of TWA pilots, AA pilots gradually moved into the St. Louis hub.
This stands in contrast to ALPA´s goals during the negotiations when "the pilots said the American buyout provides job security and protects medical and retirement benefits for pilots and other TWA employees" (TWA Pilots Back Deal With American). In the 2003 all of TWA former cabin staff was furloughed after APFA (the Association of Professional Flight Attendants) of American Airlines demoted them to the bottom of their seniority list (The Travesty of TWA). The IFFA (the Independent Federation of Flight Attendants) heavily protested against the AMR´s and APFA´s decision which went unheard. IAM (the International Association of Machinists) representing TWA´s agents was confronted with the fact that AA´s agents had no union, which is why they had to bargain with AA´s management (American Outlines Plans For TWA Integration). Mr. O'Driscoll the IAM union leader during the negotiations was still optimistic and said ''Our position up to this point was based on good faith assurance that all I.A.M.-T.W.A. employees would be offered positions with American Airlines and that their pay, benefits and seniority would not suffer." Furthermore the Transport Workers Union of America (TWU) with its 16.000 TWA members fought for equal seniority and wages levels as AA´s employees but miserably failed (Machinist Union at T.W.A. Objects to Merger With American). While American Airlines benefited from TWA routing and the fleet and the precious slots the former cabin crews had to pay for AA´s financial mismanagement. "With lives suddenly upended, the devastation of their careers has resulted in several suicides, numerous foreclosures, divorces and financial hardship and ruin" (The Travesty of TWA).
Up until today former TWA flight attendants try to persuade the APFA to change the decision of setting TWA´s seniority below that of AA´s employees. The Seniority list determines who gets to bid for assignments, days off, bases and vacation times. Of the 4.100 initial TWA cabin crew members which started are only 252 remaining at AA. Bruce Ferriss a former TWA employee said ""If I retire tomorrow with 34 years, my pension would be somewhere in the area of about $59 a month for life. Whereas if I had been hired by American in 1975, I'd be retiring on about $26,000 a year" (Ex-TWA flight attendants push AA union to treat them better).
3.2. The Merger: Delta & Northwest
Delta Air Lines, Inc. as well as Northwest Airlines both faced major losses in revenue since the beginning of this decade. After great boom periods during the 1990´s all major US carriers except for Southwest Airlines faced major losses and increasing costs even though the overall passenger numbers increased. In 2004 Delta carried the more passengers on the Pacific routes to Asia than any other US carrier, 5,1 million. Still the airline continued to hemorrhage money, without any possible solution of reversing this trend. The high labor costs as well as the rising fuel prices kept the airline in a stranglehold. Eventually in September of 2005, Northwest Airlines joined Delta Air Lines, United Airlines and US airways in filing for bankruptcy. US corporations have the possibility of filing for Chapter 11 bankruptcy protection from the government. This allows these major companies to get support from the state for a certain amount of time, in order to implement major cost cutting programs which should make the company profitable again. Following the Chapter 11 bankruptcy application on September 14, 2005 Northwest Airlines common stock shares heavily declined and the overall ailine sector lost about 10 billion USD that year (Delta, Northwest File for Chapter 11 Bankruptcy).
Nevertheless after major restructurings NWA was cleared of federal bankruptcy on May 18, 2007. Management of Delta Air Lines, Inc. and Northwest Airlines, Inc. entered merger discussions in January of 2008 which ultimately resulted in the announcement of the merger of both airlines on April 14, 2008. Delta Airlines had undergone a similar history of company restructurings and filing for bankruptcy due to the tremendous kerosene prices as well as a general downturn of the economy. Deltas approach to exit Chapter 11 was rather to expand the company instead of downsizing it, which turned to be successful in April of 2007. On September 25, 2008 shareholders of both airlines independently voted on the approval of the merger. The United States Department of Justice (DOJ) approved the consolidation on October 29th, which closed the financial merger operation. Roughly 95% of Northwest Airlines workers were unionized, whereas only 15% of Deltas employees were organized in unions (Delta Air Faces Union Recruitment Drive). Interestingly Delta was has not been confronted with a strike since 1947, in contrast to this Northwest Airlines was blocked by 11 major strikes in 5 decades. I May of 2010 the NMB finally changed a 7 decade ruling that non casted votes counted as an opposing vote, whereas the new law only requires the majority of votes to be in favor of creating a new union."After the merger transaction closes and the new Delta Airlines is established, the NWA unions filed a petition with the National Mediation Board (NMB) seeking an investigation to determine whether the new Delta was a single transportation system.
There are numerous criteria used to determine this including but not limited to (1) published combined schedules or combined routes; (2) standardized uniforms; (3) common marketing, markings or insignia. During the NMB's investigation, AFA (Association of Flight Attendants) remains the certified representative of the NWA flight attendants and continues to administer the NWA flight attendant contract (MergerTimeline.pdf)." ALPA (Air Line Pilots Association, International) had already filed this petition in November of 2008. On April 14, 2008 ALPA and the new formed airline agreed to extend the old collective bargaining agreement until the end of 2012, provided that Pilots receive around 3% equity stake of the new Delta company. The National Mediation Board (NMB) proposed a rule change in November of 2009 in order combine DELTA AFA & NWA AFA to jointly become the certified collective bargaining representative of the new Delta Airlines flight attendants (About Our Campaign). The ATA responsible campaign team is referred to as C3 which consists of 4 flight attendants of Delta and 4 flight attendants of the former Northwest Airlines. Janette Rook, the president of the Northwest AFA Master Executive Council said "We know the former Northwest flight attendants overwhelmingly support representation, and a new industry-leading contract. We believe the majority of the pre-merger Delta flight attendants do as well" (NMB Petition for Yes-No Ballots to Affect Delta Vote). The IAM (The International Association of Machinists and Aerospace Workers) is still in talks with the Delta management in order to become a certified bargaining partner (Significant Progress Made at IAM-Delta Meeting). Up to this point many unionists are in transition, the pre-merger IAM/NWA classifications are momentarily in non union pre-merger Delta positions. AMFA (the Aircraft Mechanics Fraternal Association) revoked its certification at Delta and argued that it was in the best interest of the former mechanics it represented at Northwest. AMFA therefore let IAM play the sole role for becoming the overall representative within the new formed Delta Airlines. The TWU still carries around 10.000 of the former Northwest employees and hopes to gain around twice the amount of members from the former old delta company (Delta Air Faces Union Recruitment Drive) (Mike Esterl). Still there are movements against this heavy unionization from employee side as well for example by "Bill Tweed, an Atlanta-based flight attendant at Delta since 1996, he said management is "extremely approachable" and employees don't need "a middle man" to speak on their behalf." William S. Sweldbar a Research Engineer at MIT´s International Center for Air Transportation said "Delta has paid its people very well over time. And in return for that good pay, Delta has a highly productive workforce. But, obviously, they've created a culture over their history where employees did not see the need for unionization to advance their career" (New Union-Friendly Rules Could Affect Delta).
