[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE PROPOSED DELTA/NORTHWEST MERGER: THE IMPACT ON WORKERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR AND PENSIONS
COMMITTEE ON
EDUCATION AND LABOR
U.S. House of Representatives
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, JULY 30, 2008
__________
Serial No. 110-106
__________
Printed for the use of the Committee on Education and Labor
Available on the Internet:
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COMMITTEE ON EDUCATION AND LABOR
GEORGE MILLER, California, Chairman
Dale E. Kildee, Michigan, Vice Howard P. ``Buck'' McKeon,
Chairman California,
Donald M. Payne, New Jersey Senior Republican Member
Robert E. Andrews, New Jersey Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia Peter Hoekstra, Michigan
Lynn C. Woolsey, California Michael N. Castle, Delaware
Ruben Hinojosa, Texas Mark E. Souder, Indiana
Carolyn McCarthy, New York Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts Judy Biggert, Illinois
Dennis J. Kucinich, Ohio Todd Russell Platts, Pennsylvania
David Wu, Oregon Ric Keller, Florida
Rush D. Holt, New Jersey Joe Wilson, South Carolina
Susan A. Davis, California John Kline, Minnesota
Danny K. Davis, Illinois Cathy McMorris Rodgers, Washington
Raul M. Grijalva, Arizona Kenny Marchant, Texas
Timothy H. Bishop, New York Tom Price, Georgia
Linda T. Sanchez, California Luis G. Fortuno, Puerto Rico
John P. Sarbanes, Maryland Charles W. Boustany, Jr.,
Joe Sestak, Pennsylvania Louisiana
David Loebsack, Iowa Virginia Foxx, North Carolina
Mazie Hirono, Hawaii John R. ``Randy'' Kuhl, Jr., New
Jason Altmire, Pennsylvania York
John A. Yarmuth, Kentucky Rob Bishop, Utah
Phil Hare, Illinois David Davis, Tennessee
Yvette D. Clarke, New York Timothy Walberg, Michigan
Joe Courtney, Connecticut [Vacancy]
Carol Shea-Porter, New Hampshire
Mark Zuckerman, Staff Director
Sally Stroup, Republican Staff Director
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS
ROBERT E. ANDREWS, New Jersey, Chairman
George Miller, California John Kline, Minnesota,
Dale E. Kildee, Michigan Ranking Minority Member
Carolyn McCarthy, New York Howard P. ``Buck'' McKeon,
John F. Tierney, Massachusetts California
David Wu, Oregon Kenny Marchant, Texas
Rush D. Holt, New Jersey Charles W. Boustany, Jr.,
Linda T. Sanchez, California Louisiana
Joe Sestak, Pennsylvania David Davis, Tennessee
David Loebsack, Iowa Peter Hoekstra, Michigan
Phil Hare, Illinois Cathy McMorris Rodgers, Washington
Yvette D. Clarke, New York Tom Price, Georgia
Joe Courtney, Connecticut Virginia Foxx, North Carolina
Timothy Walberg, Michigan
C O N T E N T S
----------
Page
Hearing held on July 30, 2008.................................... 1
Statement of Members:
Andrews, Hon. Robert E., Chairman, Subcommittee on Health,
Employment, Labor and Pensions............................. 1
Prepared statement of.................................... 2
Statement of the Aircraft Mechanics Fraternal Association 62
Questions for the record................................. 64
Clarke, Hon. Yvette D., a Representative in Congress from the
State of New York:
Statement of Richard H. Anderson, CEO, Delta Air Lines,
Inc.................................................... 65
Kline, Hon. John, Senior Republican Member, Subcommittee on
Health, Employment, Labor and Pensions..................... 3
Prepared statement of.................................... 4
Statement of Witnesses:
Ford, Gary M., principal, Groom Law Group.................... 32
Prepared statement of.................................... 34
Friend, Patricia A., international president, Association of
Flight Attendants--CWA, AFL-CIO............................ 11
Prepared statement of.................................... 13
Kight, Rob, vice president, compensation, benefits, and
services, Delta Air Lines, Inc............................. 18
Prepared statement of.................................... 27
Response to and letter from the Pension Benefit Guaranty
Corp................................................... 59
``The Evolution of Non-Contract Delta Air Lines Retiree
Benefits,'' April 2008................................. 19
Kochan, Thomas A., George M. Bunker professor of management,
co-director, MIT Institute for Work and Employment Research 35
Prepared statement of.................................... 37
Roach, Robert, Jr., general vice president, International
Association of Machinists and Aerospace Workers............ 6
Prepared statement of.................................... 8
THE PROPOSED DELTA/NORTHWEST MERGER: THE IMPACT ON WORKERS
----------
Wednesday, July 30, 2008
U.S. House of Representatives
Subcommittee on Health, Employment, Labor and Pensions
Committee on Education and Labor
Washington, DC
----------
The subcommittee met, pursuant to call, at 10:31 a.m., in
Room 2175, Rayburn House Office Building, Hon. Robert Andrews
[chairman of the subcommittee] presiding.
Present: Representatives Andrews, Kildee, Wu, Holt,
Loebsack, Hare, Clarke, Kline, McKeon, Boustany, and Price.
Also present: Representative Bishop (UT).
Staff present: Aaron Albright, Press Secretary; Tylease
Alli, Hearing Clerk; Jody Calemine, Labor Policy Deputy
Director; Carlos Fenwick, Policy Advisor, Subcommittee on
Health, Employment, Labor and Pensions; David Hartzler, Systems
Administrator; Sara Lonardo, Junior Legislative Associate,
Labor; Meredith Regine, Junior Legislative Associate, Labor;
Michele Varnhagen, Labor Policy Director; Robert Borden,
General Counsel; Cameron Coursen, Assistant Communications
Director; Ed Gilroy, Director of Workforce Policy; Rob Gregg,
Senior Legislative Assistant; Jim Paretti, Workforce Policy
Counsel; Ken Serafin, Professional Staff Member; Linda Stevens,
Chief Clerk/Assistant to the General Counsel; and Sally Stroup,
Staff Director.
Chairman Andrews [presiding]. Good morning, ladies and
gentlemen.
Welcome to the subcommittee. We appreciate the attendance
of the witnesses as well as the members of the public who are
with us here today for what I think promises to be an edifying
and interesting hearing.
In 1974, the Congress established the Employee Retirement
Income Security Act, known as ERISA, and one of the best
aspects of that law, which enjoyed the support of both
Republicans and Democrats and I think has endured the test of
time, is that a commonplace occurrence prior to 1974 became
exceedingly rare, and that occurrence was that people who
depended on a pension often lost it prior to 1974 for a variety
of reasons. Since 1974, the loss of pension has been a rare and
unfortunate experience for Americans.
Unfortunately, that situation is quite relevant to
pensioners and workers in the airline industry today, and the
reason that we are here is to examine the question of whether
present regulatory tools adequately or inadequately deal with
protecting the interests of pensioners and workers in a very
turbulent industry.
It is not simply the interest of pensioners and workers,
however that interests us today. It is also the interest of the
American taxpayers, because although there is not a statutory
obligation to stand behind the obligations of the Pension
Benefit Guaranty Corporation, I think most Americans assume
that their government would in fact stand behind those
obligations.
And as we have seen in recent days with the activities of
Fannie Mae and Freddie Mac and other institutions over the
years, in fact there appears to be a moral hazard where should
the unwelcome day come when the assets of the Pension Benefit
Guaranty Corporation are insufficient to meet obligations to
American retirees, the federal government, in all likelihood,
high probability, would step in and do something about that.
So there is a taxpayer interest here as well as an obvious
interest for workers and retirees.
We are going to look with some specificity at the proposed
merger between Northwest and Delta, but our purpose is broader
than that. Our purpose is to understand the policy issues that
are implicated by mergers in a turbulent industry, the effect
of those mergers on workers, on retirees and on the taxpayers
of the country.
We have asked and assembled a distinguished panel of
witnesses who I think can give us some very meaningful
perspectives on that issue, and what we will do is have an
opening statement from my friend from Minnesota, the ranking
member of the subcommittee, Mr. Kline. We will then proceed to
hear statements from the witnesses and go on to questions from
the members of the subcommittee.
So at this time, I will turn to my friend and colleague
from Minnesota, Mr. Kline, for his opening statement.
[The statement of Mr. Andrews follows:]
Prepared Statement of Hon. Robert E. Andrews, Chairman, Subcommittee on
Health, Employment, Labor and Pensions
Good morning and welcome to the Health, Employment, Labor and
Pensions (HELP) subcommittee hearing on ``The Proposed Delta/Northwest
Merger: The Impact on Workers.'' We appreciate the attendance of the
witnesses as well as the members of the public who are with us here
today for what I think promises to be an edifying and interesting
hearing.
In 1974, the Congress established the Employee Retirement Income
Security Act, known as ERISA, and one of the best aspects of that law,
which enjoyed the support of both Republicans and Democrats and I think
has endured the test of time, is that a commonplace occurrence prior to
1974 became exceedingly rare; and that occurrence was that people who
depended on a pension often lost it prior to 1974 for a variety of
reasons.
Unfortunately, that situation is quite relevant to pensioners and
workers in the airline industry today, and the reason that we are here
is to examine the question of whether present regulatory tools
adequately or inadequately deal with protecting the interests of
pensioners and workers in a very turbulent industry.
It is not simply the interest of pensioners and workers, however
that interests us today. It is also the interest of the American
taxpayer, because although there is not a statutory obligation to stand
behind the obligations of the Pension Benefit Guaranty Corporation, I
think most Americans assume that their government would in fact stand
behind those obligations.
Furthermore, as we have seen in recent days with the activities of
Fannie Mae and Freddie Mac and other institutions over the years, in
fact there appears to be a moral hazard where should the unwelcome day
come when the assets of the Pension Benefit Guaranty Corporation are
insufficient to meet obligations to American retirees, the federal
government, in all likelihood, high probability, would step in and do
something about that.
So there is a taxpayer interest here as well as an obvious interest
for workers and retirees.
We are going to look with some specificity at the proposed merger
between Northwest and Delta, but our purpose is broader than that. Our
purpose is to understand the policy issues that are implicated by
mergers in a turbulent industry, the effect of those mergers on
workers, on retirees and on the taxpayers of the country.
I thank the distinguished panel of witnesses we have assembled here
today and look forward to hearing their testimony today.
______
Mr. Kline. Thank you, Mr. Chairman.
Good morning to you all.
I would like to begin by thanking each of today's
witnesses--many of you have traveled far--for taking time out
of schedules to join us.
On April 15, 2008, as we all in this room know, Delta and
Northwest Airlines announced their intention to merge, subject
to the approval of the companies' shareholders and federal
regulators, particularly the Department of Justice. As
Northwest Airlines is headquartered in Eagan, Minnesota, in my
congressional district, the airline's well being and the job
security of its employees are absolutely critical to me and
have drawn a fair amount of my attention over the last few
years and certainly the law few months.
In the context of the proposed merger, maintaining a hub at
the Minneapolis-St. Paul Airport and preserving as many jobs as
possible have been my principal concerns. Northwest Airlines
has been a cornerstone of our community for more than 80 years
and has played a positive role in Minnesota's diverse economy.
The title of today's hearing is, ``The Proposed Delta/
Northwest Airlines Merger: The Impact on Workers.'' I was
interested to hear the chairman discussing perhaps a broader
scope and purpose that frankly was news to me, but it is good
to know it is out there.
Let me first say that in my view the best way we can
mitigate any impact on workers is to have a strong airline that
can sustain itself during uncertain and even very difficult
economic times. The price of gasoline and jet fuel is at an
all-time high, and the airline industry is facing significant
challenges to its economic viability.
In recent months, airlines have been forced to make tough
decisions, including reducing services and increasing ticket
prices. The current energy crisis is permeating all aspects of
our economy, and we need to put all options on the table to
address skyrocketing gas prices, something which we have been
unable to do on the floor of the House, although we are going
to persist in that.
While the issue before us today deserves our full
attention, it is important to note that the jurisdictional
authority of the Education and Labor Committee does not, in
fact, extend to cover airline mergers or labor issues in the
airline industry. Labor disputes and collective bargaining
rights in the airline industry are covered by the Railway Labor
Act, which sets forth procedures for negotiations, mediations
and arbitrations and falls under the jurisdiction of the House
Transportation and Infrastructure Committee. That is not to say
it is not important to examine these issues closely, but as we
do so, we should be mindful of exactly what our role in this
process is and what it is not.
In the context of this hearing, this subcommittee generally
has oversight over issues relating to employer-provided
pensions. As members of this committee will recall, when we
debated and passed the Pension Protection Act approximately two
years ago, we were successful in including language to protect
the long-term pension security of tens of millions of
Americans, including more than 10,000 Northwest Airlines
pension participants, many of whom reside in my district.
I was also pleased to see Northwest, as well as other
airlines, successfully emerge from bankruptcy last year, and I
am particularly interested in hearing from our witnesses today
what steps we have taken to ensure the security of pensions
that have already been earned as well as future retirement
security.
As we look forward, many decisions have yet to be made
about the proposed merger. Congress does not have a direct role
in the merger approval process, which is currently being vetted
by the Departments of Justice and Transportation. Specifically,
DOJ's Antitrust Division is reviewing the agreement to
determine whether the merger would violate laws designed to
preserve industry competition, among other considerations.
These agencies may take months to review all the documents
pertaining to the merger before making a final determination,
and we will continue to monitor the situation.
In closing, in these times of economic uncertainty and the
need for a strong domestic energy policy, we all want to see a
robust airline industry that can maintain as many jobs as
possible while looking for opportunities to increase and
improve service for consumers and ensure job security and
prosperity for its employees.
I look forward to hearing a broad range of perspectives in
today's testimony. I am pleased we have assembled such a
distinguished panel of experts in the areas of labor, industry
and pensions, and I yield back the balance of my time.
[The statement of Mr. Kline follows:]
Prepared Statement of Hon. John Kline, Senior Republican Member,
Subcommittee on Health, Employment, Labor and Pensions
Good morning. I'd like to begin by thanking each of today's
witnesses for taking time out of their schedules to join us. I would
also like to express my appreciation to Chairman Andrews for organizing
this hearing.
On April 15, 2008, Delta and Northwest Airlines announced their
intention to merge, subject to the approval of the companies'
shareholders and federal regulators, particularly the Department of
Justice. As Northwest Airlines is headquartered in Eagan, Minnesota, in
my congressional district, the airline's well-being and the job
security of its employees are absolutely critical to me. In the context
of the proposed merger, maintaining a hub at the Minneapolis-St. Paul
Airport and preserving as many jobs as possible are my principle
concerns. Northwest Airlines has been a cornerstone of our community
for more than 80 years and has played a positive role in Minnesota's
diverse economy.
The title of today's hearing is the Proposed Delta/Northwest
Airlines Merger: The Impact on Workers. Let me first say that in my
view, the best way we can mitigate any impact on workers is to have a
strong airline that can sustain itself during uncertain economic times.
The price of gasoline and jet fuel is at an all-time high, and the
airline industry is facing significant challenges to its economic
viability. In recent months, airlines have been forced to make tough
decisions--including reducing services and increasing ticket prices.
The current energy crisis is permeating all aspects of our economy, and
we need to put all options on the table to address skyrocketing gas
prices.
While the issue before us today deserves our full attention, it is
important to note that the jurisdictional authority of the Education
and Labor Committee does not, in fact, extend to cover airline mergers
or labor issues in the airline industry. Labor disputes and collective
bargaining rights in the airline industry are covered by the Railway
Labor Act, which sets forth procedures for negotiations, mediations,
and arbitrations, and falls under the jurisdiction of the House
Transportation and Infrastructure Committee. That is not to say it is
not important to examine these issues closely--but as we do so, we
should be mindful of exactly what our role in this process is, and what
it is not.
In the context of this hearing, this subcommittee generally has
oversight over issues relating to employer-provided pensions. As
Members of this Committee will recall, when we debated and passed the
Pension Protection Act approximately two years ago, we were successful
in including language to protect the long-term pension security of tens
of millions of Americans, including more than 10,000 Northwest Airlines
pension participants, many of whom reside in my district. I was also
pleased to see Northwest, as well as other airlines, successfully
emerge from bankruptcy last year. I am particularly interested in
hearing from our witnesses today what steps will be taken to ensure the
security of pensions that have already been earned, as well as future
retirement security.
As we look forward, many decisions have yet to be made about the
proposed merger. Congress does not have a direct role in the merger
approval process, which is currently being vetted by the Departments of
Justice (DOJ) and Transportation (DOT). Specifically, DOJ's Antitrust
Division is reviewing the agreement to determine whether the merger
would violate laws designed to preserve industry competition, among
other considerations. These agencies may take months to review all the
documents pertaining to the merger before making a final determination,
and we will continue to monitor the situation closely.
In closing, in these times of economic uncertainty and the need for
a strong domestic energy policy, we all want to see a robust airline
industry that can maintain as many jobs as possible, while looking for
opportunities to increase and improve service for consumers, and ensure
job security and prosperity for its employees.
I look forward to hearing a broad range of perspective in today's
testimony. I'm please we have assembled such a distinguished panel of
experts in the areas o f labor, industry, and pensions.
I yield back the balance of my time.
______
Chairman Andrews. Thank you, Mr. Kline, and we will now
proceed to hearing from the witnesses. I am going to read a
brief biography of each witness.
When the biographies are finished, we will start, Mr.
Roach, with you. You will notice that there is a--for those of
you who have not testified here before, there is a light box in
front of you. When you begin your testimony, a green light will
go on. We would ask you to take five minutes to summarize your
testimony.
Without objection, your entire written testimony will be
included in the record.
When you have one minute left in the five, the yellow light
will appear, and when the red light appears, your five minutes
are up, and we would ask you to summarize so that we can move
on to interaction between the members of the committee and the
members of the panel.
Robert Roach is general vice president for the
International Association of Machinists. Mr. Roach started his
career as a ramp serviceman for TWA and a member of Local Lodge
1056 in New York City. He is also a member of the Executive
Committee of the AFL-CIO's Transportation Trades Department and
the International Transport Workers Federation Executive Board
and Management Committees.
Mr. Roach earned a B.S. in labor and management relations
at the Empire State Labor College and most importantly is a
graduate of the Labor Studies Program at the Cornell School of
Labor, the ILR School--a tremendous university, Mr. Roach; well
chosen.
Patricia Friend is international president of the
Association of Flight Attendants-CWA and has been a United
Airlines flight attendant since 1966. Ms. Friend served on the
Department of Transportation's Rapid Response Team for Aircraft
Security after the September 11 attacks. She is also one of
eight women on the 47-member AFL-CIO Executive Council and
chairs the council's Public Affairs Committee.
Ms. Friend is a member of the Board of Directors for
Working America, an AFL-CIO affiliate and is a member of the
National Labor Colleges Board of Trustees.
Welcome, Ms. Friend; happy to have you with us.
Rob Kight--did I pronounce that correctly, Mr. Kight?
Mr. Kight. Yes.
Chairman Andrews. Rob Kight is vice president for
Compensation, Benefits and Services at Delta Air Lines. Mr.
Kight began his Delta career as an analyst in 1985 and worked
his way up to positions of managing director of H.R. Operations
and managing director of Worldwide Benefits and Health
Resources as well as the job he currently holds.
He is a trustee of the Employee Benefits Research
Institute, and he earned his B.A. from Duke University.
Welcome, Mr. Kight; we are happy to have you with us.
Gary Ford, welcome back. Gary has been with us before. He
is an attorney with the Groom Law Group and is testifying on
behalf of Northwest Airlines. Mr. Ford has been with Groom
since 1981 with the exception of a stint as general counsel to
the Pension Benefit Guaranty Corporation.
Previously, he served as ERISA counsel to the Senate
Committee on Labor and Human Resources. Mr. Ford earned an M.A.
from Harvard University and his J.D. from Boston University.
Welcome, welcome back.
And, finally, Thomas Kochan--did I have that correctly, or
Kochan? Kochan, excuse me, Mr. Kochan.
Mr. Kochan is co-director of the Institute for Work and
Employment Research at the MIT Sloan School of Management.
Before entering the academic world, Dr. Kochan served as a
third party mediator, fact finder, arbitrator and consultant to
a variety of government's private sector organizations and
labor management groups. He previously taught at the Cornell
University School of Industrial Labor Relations. Very good.
And Dr. Kochan received his Ph.D. in industrial relations
from the University of Wisconsin.
So both Cornell and non-Cornell witnesses will be invited
to speak candidly to the committee, and we will begin, Mr.
Roach, with you.
Welcome to the subcommittee.
STATEMENT OF ROBERT ROACH, GENERAL VICE PRESIDENT,
INTERNATIONAL ASSOCIATION OF MACHINISTS
Mr. Roach. Thank you, Chairman Andrews and members of the
subcommittee, for the opportunity to speak to you today.
My name is Robert Roach, Jr. I am the general vice
president at the International Association of Machinists and
Aerospace Workers, the largest airline union in North America,
and I am appearing on behalf of International president, R.
Thomas Buffenbarger.
I clearly know the value of a defined benefit pension plan
and the vital role of the Pension Benefit Guaranty Corporation.
As a former TWA employee, my pension was frozen and later
terminated. My pension from the PBGC is $212 per month for 30
years of service at TWA.
As a PBGC participant, I know the importance of ensuring
this vital agency remains solvent. The purpose I am here today
is to prevent Northwest Airlines IAM members from losing
pension benefits promised to them by Northwest management. This
would occur if the PBGC were forced to administer Northwest
frozen pension plans.
The IAM has great concern about the loss of pensions if
this proposed merger is successful, which is far from a
certainty. With high fuel prices and limited synergies and a
history of failed airline mergers, the Machinists Union and
many other industry analysts are extremely skeptical about the
merger's chance for success.
If the combined giant airline fails and needs bankruptcy
court protection, like the two separate companies sought on the
same day in 2005, the company-sponsored pension plans could be
thrust upon the PBGC. This would burden the PBGC with more than
$15.6 billion in liabilities on top of its $13.1 billion
deficit for fiscal year 2007.
We had the opportunity to meet with officials of the PBGC
yesterday, and they are very concerned about their ability to
fund pensions going forward. They are looking at different
strategies, such as different asset mixes, but, however, the
$55 billion that they have in assets, clearly, it was stated,
would not be sufficient if we continue to allow failed
companies, management who fails to run an ongoing concern, to
dump their garbage on to the federal government.
There is approximately $5.7 billion of unfunded liabilities
between Northwest and Delta--$3 billion of the pilots' plan
have already been terminated and are now currently being
administered by the PBGC.
As the chairman stated, Fannie Mae and Freddie Mac are
undergoing severe financial concerns, and the federal
government has had to step in. Unlike Fannie Mae and Freddie
Mac, the PBGC has no funding source. They cannot go into the
public market and sell stocks or sell bonds. If the PBGC can no
longer meet its obligations, it will fall to the federal
government, the taxpayers of the United States.
If the federal government fails to act, there will be tens
of thousands, if not millions, of people who will lose their
pensions, who will be thrust into the city streets, the city
and the state streets as homeless people. The states and the
cities will have to meet its obligations to take care of those
people.
This is a serious matter.
Under bankruptcy protection, Northwest froze its pension
plans, preventing employees from accruing any future benefits.
The frozen Northwest plans currently are $2.9 billion
underfunded, and they are not making the pension payments as a
result of the PPA, the Pension Protection Act, under normal
circumstances, an elongated process, which could leave the PBGC
with additional underfunded liabilities.
The Machinists Union, as a result of the bankruptcy, has
been granted an aggressive negotiating process to bring, going
forward, the Northwest machinist members into a national
pension plan, which is 113 percent funded, $9 billion in
assets. If this merger continues and gets consummated, they
will surely lose benefits going forward into that national
pension plan. There has been no commitment on the part of Delta
Air Lines to continue to fund that particular pension plan.
We were successful in keeping pensions going forward for
United Airlines, US Airways as well as Northwest Airlines and
Aloha Airlines. That is what we do--protect the pensions of our
members.
Under this current merger proposal, benefits will be lost,
health care costs will go up, and, surely, many thousands of
employees would lose their jobs. Twenty-five hundred employees,
it has been announced, at Northwest Airlines will lose their
jobs, 3,000 to 4,000 at Delta. It has already been announced
that the Minnesota office and clerical people will surely lose
their jobs. The reservation agents, it has been indicated by
Richard Anderson that they will lose their jobs, unless they
move to Atlanta, unless 3,000, 4,000 people pick up and move to
Atlanta.
Today, on CNBC, the former chairman of Delta Air Lines made
it very clear to Richard Anderson that it is very important
that he move this merger very quickly to eliminate the
collective bargaining agreements. Mr. Anderson replied, ``We
will move very quickly to get into the Delta environment,''
which means they will fight us very hard, as they fought the
AFA to keep union representation from the Delta Air Lines
employees.
The Delta CEO testified before the House Transportation
Infrastructure Subcommittee that when the airline combines with
Northwest, Delta will maintain existing pension plans of both
companies, but, again, we have had no contact with Delta Air
Lines management and Northwest Airline management indicated
very clearly to our representative, ``They are not going to
talk to us, because they don't anticipate that we are going to
be around after this merger, and they will have free will to do
whatever it is that they think is necessary to line the pockets
of top management.''
Chairman Andrews. Mr. Roach, if we could just ask you to
quickly summarize.
Mr. Roach. In sum, we believe that the PBGC is in jeopardy
because of the potential merger. In the event this merger goes
through, we believe more liabilities will come on to the
airline. We believe that the Congress of the United States
should act, act very aggressively, to secure the underfunding
payments that are owed to the PBGC and to the employees to make
sure that this does not fall on the federal government.
Thank you, Mr. Chairman.
[The statement of Mr. Roach follows:]
Prepared Statement of Robert Roach, Jr., General Vice President,
International Association of Machinists and Aerospace Workers
Thank you, Chairman Andrews and members of this Subcommittee for
the opportunity to speak to you about the important issue of worker's
pensions. My name is Robert Roach, Jr., General Vice President of the
International Association of Machinists and Aerospace Workers (IAM),
the largest airline union in North America. I am appearing on behalf of
International President R. Thomas Buffenbarger. The IAM represents more
than 160,000 active and retired airline workers in almost every job
classification, including flight attendants, ramp service workers,
mechanics, customer service, reservation agents and office employees.
I know the value of a defined benefit pension and the vital role of
the Pension Benefit Guaranty Corporation (PBGC). As a former TWA
employee, my pension from the PBGC is $212.00 per month for thirty
years of service. The TWA employee pensions were frozen and later
terminated. This amount reflects decades of poor airline management
decisions and failed mergers. As a participant of the PBGC, I know the
importance of ensuring this vital agency remains solvent. Tens of
thousands of former airline employees receive reduced pension checks
from the PBGC because of early terminations.
I am here to try and prevent IAM members from Northwest Airlines
from losing pension benefits promised to them by Northwest management.
This would occur if the PBGC were forced to administer Delta and
Northwest's frozen pension plans. In addition, if the PBGC were forced
to assume an additional $5.7 billion in pension shortfalls from Delta
and Northwest on top of the $3 billion of pension shortfalls it has
already absorbed from Delta's terminated pilot pensions, it could cause
a collapse of the PBGC.
Pension failure
The IAM has great concern about the loss of pension benefits if the
proposed merger is successful, which is far from a certainty. With high
fuel prices, admittedly limited synergies and a history of failed
airline mergers, the Machinists Union and many industry analysts are
extremely skeptical about this merger's chance for success. If the
combined giant airline fails and needs bankruptcy court protection,
like the two separate companies sought on the same date in 2005, the
frozen company-sponsored pension plans could be thrust upon the PBGC.
This would burden the PBGC with more than $15.6 billion in liabilities
on top of its $13.1 billion deficit for fiscal year 2007.
The steel industry dumped $9.4 billion of liabilities on the PBGC,
followed by $18.6 billion in airline pension shortfalls the PBGC has
already absorbed. Faced with the possible collapse of pensions in the
automotive manufacturing industry, the PBGC's future looks very
unstable.
The federal government is scrambling to rescue the grossly
underfunded Fannie Mae and Freddie Mac. The same may be needed for the
PBGC. Unlike Fannie Mae and Freddie Mac, who have access to the public
markets as a source of revenue, the PBGC's only funding comes from
premiums paid by plan sponsors and the assets of the terminated plans
that it administers.
If the PBGC can no longer meet its obligations and it doesn't
receive a federal bailout, states and cities will be greatly burdened
by current and future retirees seeking aid through welfare programs.
Pension sponsors, not taxpayers, should be required to live up to their
pension promises.
Congress created the PBGC to act as a safety net for companies that
could not meet their pension obligations. Title IV of the Employee
Retirement Income Security Act of 1974 (ERISA) stated that part of the
PBGC's mission is ``to encourage the continuation and maintenance of
defined benefit pension plans.'' A merger between Delta and Northwest
Airlines jeopardizes not only the vested and future defined pension
benefits earned by the airlines' employees, but also puts the financial
integrity of the PBGC itself at risk.
Northwest pensions
When Northwest entered bankruptcy, the majority of IAM members were
earning pension benefits in a company-sponsored defined benefit pension
plan. Under bankruptcy protection, Northwest froze all of its pension
plans, preventing employees from accruing any future pension benefits.
The frozen Northwest plans are currently $2.9 billion underfunded.
As a result of difficult negotiations and our members' sacrifice in
other areas, Northwest's IAM-represented employees are the only group
at the airline with an active defined benefit pension plan.
The contribution rate paid into the IAM National Pension Plan
provides a known, PBGC-insured benefit. Benefits are expected to
increase in subsequent non-bankruptcy contract negotiations.
Additionally, benefits have a tendency to increase as the plan
redistributes overfunding to participants. This is in contrast to
airline sponsored plans that siphoned any overfunding years ago to
benefit the carriers, not the plan participants, causing the crisis
that resulted in frozen and terminated plans.
Delta pensions
Delta employees in comparable job groups to Northwest's IAM members
also had their defined benefit pension plan frozen when their company
was in bankruptcy. However, because these Delta employees were not
members of the Machinists Union they had no options but to accept
Delta's unilateral decision. Delta's frozen pension plans are
underfunded by $2.8 billion, in addition to the terminated pilot
pension that was $3 billion underfunded when it was taken over by the
PBGC.
Delta employees are currently earning no pension plan benefits.
They have only a 401(k) defined contribution plan that puts all the
investment responsibility and risks on the employee. As this committee
knows, defined contribution plans are not insured by the PBGC and
provide no guaranteed benefit. What benefits there may be upon
retirement are susceptible to market fluctuations and personal
investment choices. That is why a defined benefit pension is so
important, as Congress clearly recognizes by their participation in
such a plan.
Delta's empty promises
Delta's CEO testified before the House Transportation and
Infrastructure's Aviation Subcommittee that when his airline combines
with Northwest, Delta will ``maintain the existing pension plans of
both companies.'' \1\ However, he has been silent on how he is going to
continue the defined pension benefits IAM members are currently
accruing at NWA and extend it to their Delta counterparts.
---------------------------------------------------------------------------
\1\ Testimony of Richard Anderson, May 14, 2008, House
Transportation and Infrastructure Committee, http://
transportation.house.gov/hearings/Testimony.aspx?TID=6018&NewsID=609
---------------------------------------------------------------------------
The only way for Delta CEO Richard Anderson to keep the promise he
made to the Aviation Subcommittee is through Delta's participation and
contributions to the IAM National Pension Plan. That is only possible
if the IAM is allowed to extend our representation to Delta employees.
The Machinists Union has an aggressive organizing campaign underway
at Delta, but CEO Richard Anderson's steadfast refusal to remain
neutral and the airline's historically aggressive anti-union stance may
cause Northwest employees to lose a pension plan for the second time.
This task is even more daunting because airline workers organize under
the Railway Labor Act (RLA). Under the RLA, 50%+1 of eligible employees
in a group must cast a ballot for an election to be valid. For example,
if there is a union representation election and the Machinists Union
receives 100% of the votes cast, but only 50% of the eligible workers
participate by casting ballots, the workers will remain non-union. If
that happens in an election as a result of the Delta/Northwest merger,
Northwest workers will become at-will employees, lose their defined
benefit pension plan and more than 60 years of collective bargaining
gains.
Delta and Northwest have made commitments to employees, but these
commitments are unenforceable and the airline will not be held
accountable. If the combined airline wants to make true commitments,
they should stop interfering with Delta employees' right to organize,
and make their commitments part of collective bargaining agreements
that protect employees at the combined carrier.
Seniority
Delta has said that it will integrate seniority fairly, and that
they are required to do so under the law. But what does ``fairly''
mean? There are no less than five recognized methods for ``fair and
equitable'' integration of airline seniority lists.
1. The surviving group principle, where the acquiring company's
employees receive seniority preference over the acquired employees;
2. The follow-the-work-principle, were seniority is allocated by a
ratio of what assets each individual airline contributed to the
combined company;
3. The absolute rank principle, where employees retain their
respective rank on the newly mergers seniority list;
4. The ratio-rank principle, where a ratio of the employees of each
group to be merged are assigned places on the combined seniority list
according to a ratio of total employees.
5. The length of service principle, where all employees are
combined by their current seniority date, regardless of which airline
they came from.\2\
Fairness is in the eye of the beholder, and what Richard Anderson
deems fair is not important. We need to focus on what employees
consider to be fair.
---------------------------------------------------------------------------
\2\ How Arbitration Works, Sixth Edition Elkouri, Elkouri, Reuban;
BNA Books, p.868-870
---------------------------------------------------------------------------
The merger
The Northwest-Delta merger proposal will reduce service, increase
fares, eliminate jobs and negatively impact communities across the
country. It is ridiculous to imagine a larger, combined airline can be
profitable when both of these individual airlines are already shedding
jobs, planes and routes in order to survive.
A generally unspoken consequence of a Delta-Northwest merger will
be the loss of defined pension benefits for 12,500 IAM members at
Northwest Airlines. The Machinists Union has been aggressive in
negotiating defined benefit pension plans for our members in the
airline industry. In spite of airline-sponsored pension plans being
terminated or frozen, the IAM has successfully negotiated the multi-
employer IAM National Pension Plan for our members at several airlines,
including United Airlines, US Airways and Northwest Airlines.
The IAM National Pension Plan is a completely separate entity from
the Machinists Union, and is overseen by a Board of Trustees made up of
an equal number of employer and union-appointed members.
The IAM National Pension Plan has more than 1,750 contributing
employers, 113,000 active participating members and $9 billion in
assets. Unlike the few other pension plans remaining in the airline
industry, the IAM National Pension Plan is 113% funded and provides
real retirement security for our members.
The IAM National Pension Plan is designed for people working under
IAM contracts. If this merger is approved over our objections, we hope
to extend the benefits of the IAM National Pension Plan when our IAM
members combine with Delta's employees. However, if Delta launches
another assault on their employees' legally protected right to
collectively bargain and the IAM does not represent employees at the
combined carrier, as Delta hopes, workers will no longer be able to
participate in the IAM National Pension Plan.
Summary
Pensions are not perks offered by airlines--they are deferred
compensation for decades of maintaining a 365-day-a-year, 24-hour-a-day
operation. Our members' pension benefits are proudly earned through
hard work at reduced wages in exchange for promised retirement income.
Northwest's IAM-represented employees have enjoyed the benefits of
a secure union work environment for more than 60 years. They labored
for the day when they could retire with some dignity and financial
security. The ill-advised Delta-Northwest merger will jeopardize
everything they have worked for while destroying two once-great
airlines and threatening the solvency of our nation's pension insurance
agency.
I look forward to your questions.
______
Chairman Andrews. Mr. Roach, thank you very, very much for
your testimony.
Ms. Friend, welcome to the subcommittee. We are looking
forward to hearing from you.
STATEMENT OF PATRICIA FRIEND, INTERNATIONAL PRESIDENT,
ASSOCIATION OF FLIGHT ATTENDANTS
Ms. Friend. Thank you.
Thank you, Chairman Andrews, for holding this vital hearing
on the impact on employees of the proposed merger of Northwest
and Delta Air Lines. We especially want to thank the committee
for inviting us to testify today and giving voice to the
concerns of the flight attendants of these two great airlines.
Before going into the specifics of the direct impact of
this merger on the Delta and Northwest flight attendants, I
would like to first raise a broader issue that confronts
airline employees in a merger situation. While some protections
are in place for consumers and communities, there are virtually
no protections for airline workers other than those that have
been negotiated in union contracts.
This has not always been the case. There were many
important protections in place for airline workers prior to the
Airline Deregulation Act. The Allegheny Mohawk Labor Protective
Provisions were made a condition of government approval of
virtually every airline merger. These LPPs contained extensive
protections designed to shield workers from an unfair share of
the burden resulting from airline mergers.
But airline executives successfully lobbied for an end to
the LPPs because, as they argued, these matters are better left
to the collective bargaining process. Union contracts do
provide a level of protection for those employees covered by
such an agreement, but there is no protection for non-union
airline employees like the flight attendants at Delta Air
Lines.
The Northwest flight attendants joined AFA just two years
ago, but they have been union members for over 60 years. Their
proud tradition of union representation is now threatened by
management's use of this merger process to attempt to eliminate
their collective bargaining agreement.
Our primary concern is that Delta executives are using this
merger to eliminate the rights of employees to have a seat at
the table when the airline is fully merged with Northwest.
Scheduling work rules, health care benefits, retirement
security and retiree health care, vacations, seniority
protections and furlough protections are provided and governed
by the AFA contract at Northwest Airlines. Absent a union
contract, these vital components of a flight attendant career
will be left in the hands of someone in a Delta Air Lines
corporate department--a distant party who does not represent
the interests of flight attendants.
Northwest and Delta Air Lines management both froze
contributions to their flight attendant pension plans when they
entered bankruptcy. In the Northwest AFA contract, however, the
remaining plan is protected in writing. The AFA contract
establishes a Northwest Airlines flight attendant retirement
board, providing AFA members there a legally binding voice in
their retirement security. Importantly, a defined contribution
plan was negotiated to replace that defined benefit plan and is
secured in writing.
Delta's flight attendant policy manual gives no guidance in
this vital area, effectively defaulting to a plan controlled by
third parties.
The Northwest flight attendant medical benefits plan,
prescription drug plan and retiree health care plan are spelled
out in detail in the AFA contract. These medical plans are
maintained and protected through the duration of the Northwest
AFA contract. Delta flight attendants do not enjoy the same
protections as their colleagues at Northwest and default to
whatever plan management chooses.
Flight attendants face one other devastating threat in this
merger. This merger will most likely resurrect past efforts by
Northwest executives to outsource our best jobs to flight
attendants based outside the U.S.
But I am testifying here today to express our outrage over
Delta Air Lines's coercive campaign to interfere with its
flight attendants' right to freely select a bargaining
representative under the RLA. In my 40 years in this industry,
I have never witnessed a more intense and heavy handed anti-
union campaign as the one recently waged by Delta management
during the Delta flight attendants representational election.
Delta's intense and overwhelming anti-union campaign was a
voter suppression campaign tailored to take advantage of the
onerous organizing rules that are applied by the NMB.
We have filed interference charges with the National
Mediation Board asking as a remedy a rerun of the election
using a process that will more accurately reflect the wishes of
the Delta flight attendants. But we are very skeptical that the
NMB will rule against management's anti-union campaign. This
NMB has repeatedly ruled on the side of the employer.
In the context of this merger, the company's anti-union
tactics take on added urgency. This merger should not be
permitted to become a vehicle for union busting. Using this
merger as an opportunity to destroy unions provides these
airlines and all who would follow with an opportunity to drive
down wages, work rules and benefits for all airline employees.
If Delta is a non-union carrier, as well as the largest
carrier, they will be poised to set in motion an unprecedented
remaking of the entire airline industry that will destroy
airline jobs as a stable and secure middle-class career once
and for all.
And, finally, I urge you and the members of this committee
to remember the hundreds of thousands of airline employees
across this country. We are the ones who have the most to lose,
and we have the least protection. Most importantly, do
everything within your power and don't let them destroy the one
thing we have protecting us: our unions.
Thank you.
[The statement of Ms. Friend follows:]
Prepared Statement of Patricia A. Friend, International President,
Association of Flight Attendants--CWA, AFL-CIO
Thank you, Chairman Andrews for holding this vital hearing on the
proposed merger of Northwest and Delta Airlines and the merger's impact
on employees. My name is Patricia Friend and I am the International
President of the Association of Flight Attendants--CWA, AFL-CIO. AFA
represents over 55,000 flight attendants at 20 U.S airlines and is the
largest union in the world representing flight attendants. We
especially want to thank the Committee for inviting us to testify today
and giving voice to the concerns of the flight attendants of these two
great airlines. Flight attendants and other employees have kept these
airlines flying during the good times * * * and through some very
difficult times. We appreciate having a seat at this table to testify
and to share our views and our concerns about what this merger could
mean to them.
This merger between Northwest and Delta has drawn significant
attention from the media, communities served by both carriers and here
on Capitol Hill. The attention being paid to what will create the
largest airline in the world is appropriate * * * and necessary. This
announced merger has led to continued speculation about which airlines
will be next to merge and airline management efforts to accomplish
further consolidation. And, although the merger drumbeat started much
earlier as airline executives sought greater profits following the
recent epidemic of bankruptcies, airline CEOs continue now to call for
greater consolidation in light of the exploding cost of fuel.
I'm especially pleased of the focus of today's hearing--the impact
of this merger on the employees at what could become the world's
largest non-union airline. As you well know, and which various other
hearings have highlighted, consumers are frightened that this airline
merger in particular, and further consolidation of the industry in
general, will lead to much higher fares and reduced service. Hundreds
of communities are rightfully concerned that this merger and others
could lead to the loss of valuable air service as the evolving mega-
carriers shed routes in hopes of consolidating their profits. Delta has
already announced significant cutbacks in flights at their Cincinnati
hub. But no hearing to date has focused exclusively on the impact to
the tens of thousands of Northwest and Delta flight attendants and I
applaud you for making that the sole focus of this hearing.
Before going into the specifics of the direct impact of this merger
on the Delta and Northwest flight attendants, I'd like to first raise a
broader issue that confronts airline employees in a merger situation.
While some protections are in place through the regulatory approval of
airline mergers from the Department of Justice and Department of
Transportation for consumers and communities, there are virtually no
protections for airline workers in this merger other than those that
have been negotiated in any union contracts. There has been little
attention paid to the extreme upheaval that mergers create for the
thousands of airline employees who find themselves unemployed or whose
lives are disrupted.
This has not always been the plight of airline workers. There were
many important protections in place for airline workers prior to the
Airline Deregulation Act of 1978; the Allegheny-Mohawk Labor Protective
Provisions (commonly know as the LPPs) were made a condition of
government approval of virtually every airline merger. The LPPs
contained extensive and specific protections--like displacement and
relocation allowances, wage protections, transfer and seniority
protections, layoff protection, and others--as part of a standardized
set of provisions designed to shield workers from an unfair share of
the burden resulting from airline mergers.
But no substantial protections from our federal government exist
today to cushion airline workers involved in mergers. After the
deregulation of the airline industry, airline executives successfully
lobbied for an end to the LPPs because, as they argued at the time,
these matters are 'better left to the collective bargaining process.'
Union contracts provide a level of protection for those employees
covered by the agreement, but there is little to no protection for non-
union airline employees--like the fight attendants at Delta airlines.
Those same employers who wanted to leave these protections to the
bargaining process now spend millions of dollars on union busting,
trying to prevent their employees from attaining the right to bargain,
or to strip that right from those who have had it for decades. And
today, many of those same employers who hold press conferences to
trumpet the fact that their mergers will not cause any layoffs often
refuse to agree in writing to such guarantees.
Of all the well-developed rules referred to prior to deregulation
as Allegheny-Mohawk LPPs, only one exits today--the provision
establishing basic seniority protections in the event of a merger. And,
that provision was only recently resurrected and included in last
December's Omnibus Appropriations bill after the advocacy of AFA and
the strong support of Representative Russ Carnahan, Senator Claire
McCaskill and this Congress.
Earlier attempts by Congress to provide protections for airline
employees during mergers, provides an instructive history in the
current context. Congress included the Airline Employee Protection
Program (EPP) in the Deregulation Act to assist adversely affected
employees. At least 40,000 employees lost their jobs in the wake of
deregulation. The EPP was supposed to provide for both monthly
compensation and first-hire rights at other airlines. However,
displaced employees never received the benefits Congress promised and
funding was never authorized for the benefits, turning the whole
program into a cruel joke for airline employees in desperate need of a
life-line.
As we look at the impact of this merger on the workers at Northwest
and Delta, perhaps it is time to revisit the concept of employee
protection from the Deregulation Act. No, we are not proposing to re-
regulate the industry today; that's a worthy discussion for a different
hearing that we welcome and we would encourage Congress to hold. But we
do think that--at a minimum--something needs to be done to shield
workers from the harshest effects of this merger and any future
mergers.
We all know that the minute this merger is approved, executives
will be looking for cost saving 'synergies' that will make the new
airline ever more profitable. Many of the synergies that the executives
will likely turn to first are precisely the steps that will harm the
interests of the workers, such as furloughs, base closures, fleet
reductions and, perhaps worst of all, outsourcing.
In order to achieve those cost savings, Delta management has
already made it clear that they will do everything in their power to
first make sure there is no union in place to protect the hard earned
benefits of the currently unionized Northwest flight attendants, which
as a whole are much better than the non-union Delta flight attendants.
This merger seriously jeopardizes the collective bargaining rights of
all the Northwest employees who have fought for and won the legal right
to have union representation. Virtually all employees at Northwest have
chosen to join a union. Delta, on the other hand, has only one major
workgroup that is unionized--its pilots.
For several years, Delta flight attendants have been working
diligently to secure a better future through joining AFA and eventually
securing a legally binding contract. Their hard work paid off earlier
this year when they filed cards from over 50% of all the Delta flight
attendants requesting an election to join AFA. This spring, the
National Mediation Board (NMB) mailed voting instructions to Delta
flight attendants and after a four week window the voting ended on May
28th.
I am testifying for AFA here today to also express our outrage over
Delta Air Lines' ubiquitous and coercive campaign to interfere with its
flight attendants' right to freely select a bargaining representative
under the Railway Labor Act (RLA). In my 40 years in the airline
industry, I have never witnessed a more intense and heavy-handed anti-
union campaign. Since the NMB mailed voting instructions to the Delta
flight attendants on April 23, Delta management flooded the flight
attendant crew lounges with supervisors, and wallpapered its facilities
with anti-union posters urging flight attendants to not vote. Or as
Delta puts it: ``GIVE A RIP--DON'T CLICK, DON'T DIAL.''
Delta's intense and overwhelming anti-union campaign was simply a
voter suppression campaign that was tailored to take advantage of the
onerous organizing rules that are applied by the NMB for
representational elections governed by the RLA. Although the RLA makes
no mention of such an extraordinary requirement, the NMB rules state
that in order for a representation election to even be considered
valid, a majority of all eligible voters must turn out to vote in the
election. If 95% of flight attendants who cast a vote want to join AFA
but only 49.9% of all the eligible flight attendants cast a vote, then
the election is invalid.
In effect, a person who chooses not to cast a vote in an NMB
election is counted as a ``no'' vote, encouraging management to focus
their efforts on voter suppression in every election. Anyone appearing
on the voter eligibility list, for whatever reason whether it through
illness, apathy or forgetfulness, who does not cast their ballot in the
allotted time frame, is counted as having voted against the union. In a
sense, the voting starts with all 100% of eligible voters casting a
``no'' vote for union representation and the union must get enough
people to ``switch'' their votes to yes, by participating in the
election. I ask the members of the Committee to consider if they, or
most of their colleagues, would be sitting here today if our
Congressional elections were governed under the same onerous rules,
where turnout is more important than the actual votes cast.
During the election period, Congressional oversight and harsh
questioning by your colleagues of Delta CEO Richard Anderson at other
hearings, had little deterrent effect on Delta's management when it
came to their anti-union campaign. Delta CEO Richard Anderson's promise
to Congresswomen Betty Sutton at a hearing before the Antitrust Task
Force of the House Judiciary Committee on April 24 that the Company
would ``follow the NMB's election rules'' during this election was
clearly an empty one. To the contrary, over the four-week voting period
in the representational election, Delta effectively overwhelmed the
flight attendants' ability to choose a representative freely.
Delta used every method available to them to pressure the Delta
flight attendants, when receiving their NMB ballots in the mail, to
``Give it a rip'' and destroy the ballot. Through supervisor
intimidation, massive pressure at the workplace, a message delivered
through every imaginable communication including the computers used to
sign in for flights and sowing confusion about voter eligibility, Delta
was successful in suppressing the turnout of Delta flight attendants.
In the end, 99% of the Delta flight attendants voting in the election
cast ballots for AFA as their collective bargaining agent. However,
because Delta was successful in suppressing the vote, only 40% of Delta
flight attendants cast ballots in the election, thereby making the
election invalid.
In light of Delta management's glaring violations of the rights of
their employees, AFA has filed interference charges with the National
Mediation Board and to order a re-run of the election, using a process
that will more accurately reflect the wishes of the Delta flight
attendants. I have provided a copy of the filing with my testimony,
which goes into greater detail in regards to the anti-union campaign
waged by Delta management.
We remain skeptical however that the NMB will rule against the
harsh anti-union campaign. This NMB has repeatedly ruled on the side of
the employer in such cases. We have repeatedly witnessed first hand the
efforts of this NMB to ignore the intent of the RLA to level the
playing field so that employees could be allowed to choose union
representation free from employer intimidation. Again, we have outlined
in great detail in our NMB filing (accompanying this testimony) the
actions by this NMB in the Delta flight attendant union election that
are troubling, including arbitrarily changing the time frame for the
election after the initial voting period was announced and AFA had
produced all relevant voting material information.
The most troubling action was recently taken when the NMB announced
proposed changes to their rules governing union certification in an
airline merger. Their proposed rules now require a ``substantial''
majority for union recognition. This ``substantial'' majority would be
left to the board's discretion and they would not be allowed to
consider signed authorization cards by employees when determining if
there is a ``substantial'' majority. This would potentially open the
door for the NMB to disallow a voluntary recognition of union
representation based on a majority of employees signing authorization
cards--even if it was agreed to by the union and the employer. But
these last minute efforts to change the rules in the middle of the game
should not be shocking considering that the current Chair of the NMB is
the former Vice President of Government Affairs for Northwest Airlines.
In the context of this merger, the company's anti-union tactics
take on added urgency; the merger should not be permitted to become a
vehicle for union busting. Airline executives have realized the
opportunity that this merger presents: not just a chance to prevent
thousands of non-union employees from gaining a union, but also a
chance to eliminate the unions that already provide protection for
their members at Northwest Airlines.
Northwest flight attendants joined AFA two years ago, but have been
union members for 60 years. Their proud tradition of union
representation is threatened by management's use of this merger process
to attempt to eliminate the Northwest flight attendants collective
bargaining agreement, which, in turn, poses a real threat to the job
security for thousands of flight attendants, and the superior benefits,
work rules and protections that they have gained through years of
collective bargaining.
We viewed the recently concluded Delta flight attendant
representational election as the first line of defense for the
collective bargaining rights of the Northwest flight attendants. If the
Delta flight attendants had been successful in their efforts to gain a
voice in their workplace then we could have focused on negotiating a
contract that would have provided the best work rules and benefits for
the two groups. A second election will be necessary to determine the
future of the collective bargaining rights of the newly combined and
merged Delta Airlines. Based on the number of Delta flight attendants
who have signed AFA authorization cards, and the number of Northwest
flight attendants who are already AFA members, AFA has the support of a
solid majority of the combined workforce. Based on Delta's past union
busting efforts and stated goal to become the world's largest non-union
airline, we have no doubt that they will use every tool at their
disposal to make sure that the flight attendants of the new airline
have no collective bargaining rights and are stripped of their
contractual protections.
Delta executives have not been shy about their efforts to prevent
the employees from forming unions. In fact, in a meeting with AFA
Northwest leadership, Northwest management stated flatly that there
would not be a seat at the table for the flight attendants in the
merger discussions. He went on to state that the current Delta was a
non-union company and that the ``New Delta'' had every intention of
remaining a non-union company; Delta planned to defeat the union and
prevent the flight attendants from having, or keeping, the bargaining
rights that are essential in the face of this merger. Delta has already
demonstrated that they will spread disinformation and make every effort
to prevent Delta flight attendants from casting ballots. They've even
gone so far as to state that they supported and were instrumental in
having the seniority integration protections passed by Congress in the
Omnibus Appropriations late last year, even though they spent months
opposing inclusion of the language. I would ask this Committee: what is
wrong with our system when the majority of these flight attendants want
union representation and yet face such great barriers to achieve that
goal?
Bargaining rights are paramount if the flight attendants are to
have an opportunity to negotiate over the impact this merger will have
on their work lives. Our primary concern is that Delta executives will
use the merger to eliminate the rights of employees to have a seat at
the table when the airline is fully merged with Northwest.
Using this merger as an opportunity to destroy unions provides
these airlines, and all who would follow, with an opportunity to drive
down wages, work rules and benefits for all airline employees. It can
create a domino effect that will force even unionized carriers to match
those drastic cuts in order to compete. They will set industry
standards back to levels we have not seen in decades. If Delta is a
non-union carrier, as well as the largest carrier, they will be poised
to set in motion an unprecedented remaking of the entire airline
industry that will destroy airline jobs as a stable and secure middle
class career once and for all.
Collective bargaining agreements provide a level of legally binding
protections negotiated and enforced by a flight attendant union,
company officials and with oversight from federal agencies. Employees
form the union and negotiate a contract based on their priorities.
Absent a union and a legally binding contract, management is given
extraordinary rights, particularly during a merger in the airline
industry with limited federal regulation protections.
The unique operations of an airline expose employees to a series of
market driven and regulatory changes. For instance, union contracts
provide clear and fair procedures that protect airline employees when a
company opens or closes a base or domicile, which is commonplace in
this industry. What happens when that contract goes away? Without a
contract and negotiations, company policy can then change with the
issuance of a memo. Management can arbitrarily select which employees
must move to a new location and which stay.
Furloughs occur in our industry in large part due to economic
downturns and most recently because of spiking jet fuel costs. AFA
contracts have long provided protections in this area, ensuring that
the company first offer voluntary leaves of absence or voluntary
furloughs and then enforces a fair process when management forces
involuntary furloughs. The Northwest AFA contract protects--in
writing--Northwest flight attendants when this process occurs. Delta's
policy manual can be changed by management at will and at any time.
Delta flight attendants deserve better.
Scheduling work rules, health care benefits, retirement security
and retiree health care, vacation, seniority protections and furlough
protections are provided and governed by the AFA contract at Northwest
Airlines. Absent a union contract, these vital components of a flight
attendant career will be left in the hands of someone in a Delta Air
Lines corporate department, a distant party who does not represent the
interests of flight attendants.
Northwest flight attendants benefit from superior protections in
their legally binding contract, particularly in the areas mentioned
above. Delta flight attendants operate under a policy manual which has
no enforcement provisions and is not legally binding on the company.
Delta management has changed the policy manual for flight attendants,
can change the flight attendant policy manual at will, and will change
the flight attendant policy manual in the future should their plan to
become the largest non-union carrier prevail.
Northwest Airlines and Delta Air Lines management froze
contributions to their flight attendant pension plans when both
carriers entered bankruptcy. In the Northwest AFA contract however, the
remaining plan is protected in writing along with applicable federal
law protections. The AFA contract establishes a Northwest Airlines
Flight Attendant Retirement Board, providing AFA members there a
legally binding voice in their retirement security. Importantly, a
defined contribution plan was negotiated to replace the pension plan
and is secured in writing. Delta's flight attendant policy manual gives
no guidance in this vital area, effectively defaulting to a plan
controlled by third parties.
The Delta flight attendant pension plan contains a social security
offset deduction. The Northwest pension plan contains no social
security offset deduction.
The Northwest flight attendant medical benefits plan, prescription
drug plan and retiree health care plans are spelled out in detail in
the AFA contract. The level of coverage and cost containment language
are secured in writing. These medical plans are maintained and
protected through the duration of the Northwest AFA contract. Delta
flight attendants do not enjoy the same protections as their colleagues
at Northwest and default to whatever plan management wants. If Delta
flight attendants remain non-union in the merged airline, what happens
to these protections?
Delta flight attendants deserve better and Northwest flight
attendants deserve to keep their protections.
Flight attendants face one other devastating threat in this merger,
one that no other work group is likely to encounter. This merger will
most likely resurrect past efforts by Northwest executives to outsource
our best jobs to flight attendants based outside the U.S. Such
outsourcing of flight attendant jobs on international routes to foreign
nationals will resurface if the new Delta achieves their goal and
become a industry standard practice. When Northwest first proposed
flight attendant outsourcing during bankruptcy, a bipartisan group of
House and Senate members rose up to decry such a move as jeopardizing
aviation safety and security. With a union fighting to protect the
Northwest flight attendants jobs, and support from members of Congress,
Northwest management backed off such a proposal and thousands of good
paying jobs remained for Northwest flight attendants. Only if the union
retains its legally binding bargaining rights following the merger will
the flight attendants have the legal standing to continue the fight
against such outrageous ideas as outsourcing flight attendant jobs.
What other ideas will an unchallenged Delta management team attempt to
impose on its non-union flight attendants? Many of the current Delta
executives were involved in earlier outsourcing attempts when they were
at Northwest Airlines.
I urge the members of this Committee to send a strong and clear
signal to Northwest, and especially to Delta executives, that they must
not use this merger as a means to destroy the collective bargaining
rights of flight attendants. I would urge this Committee to use its
good offices to monitor Delta management as this merger progresses so
that they do not engage in election activities similar to those of the
past elections--actions that violated the spirit of the Railway Labor
Act, even if the NMB ruled they did not violate the letter of the law.
And finally, I hope that you will use your influence to persuade Delta
management to remain neutral in the upcoming representation election.
If they are successful in their goal to keep the ``new Delta'' non-
union, we could see this merger as the beginning of the end for the
airline industry as a source of decent and respectable jobs.
I urge you to remember the hundreds of thousands of airline
employees across this country. Keep us in mind as you review this
merger and the impact that it will have on our lives and our families.
We are the ones who have the most to lose; and we have the least
protection. Most importantly, don't let them destroy the one thing we
have protecting us--our unions.
______
Chairman Andrews. Ms. Friend, thank you very much for your
participation here this morning.
Mr. Kight, welcome to the subcommittee. We look forward to
your testimony.
STATEMENT OF ROB KIGHT, VICE PRESIDENT, COMPENSATION, BENEFITS,
AND SERVICES, DELTA AIR LINES, INC.
Mr. Kight. Thank you.
Chairman Andrews, members of the subcommittee, Delta
welcomes this opportunity to appear before you today to discuss
the impact on employees and retirees of both companies
resulting from the proposed Delta and Northwest merger.
With your permission, I would ask to enter into the record
a statement of support for the merger from the Delta Board
Council, a group of frontline employees elected by their peers
in each major work group to represent them with management----
Chairman Andrews. Without objection.
[``The Evolution of Non-Contract Delta Air Lines Retiree
Benefits,'' prepared by Delta Air Lines Retirement Committee,
April 2008, follows:]
------
Mr. Kight. Thank you.
We know that our employees and retirees may be worried
about the changes ahead. As a result, we have made very
deliberate decisions to ensure that this merger is in their
best interest and to anticipate their concerns.
Our objective is to create a stronger, more enduring
airline that will provide job security, opportunities for
career growth and enhance benefit security as well.
As you know, Delta and Northwest CEOs have already
testified before four congressional committees. Their
statements and testimony have addressed all aspects of this
merger, including providing extensive information on the impact
on employees and retirees of the two companies. My testimony
will primarily concentrate on the compensation and benefits
that Delta will provide post-merger to the employees and
retirees of Delta and Northwest since those areas fall within
my scope of responsibilities.
Delta has long enjoyed a uniquely cooperative relationship
with its people. We believe that if we take care of our people,
they will take care of our customers. Accordingly, the merger's
impact on our people was uppermost in our minds as these
decisions were made. Delta would not have done this deal if it
did not benefit the people of both airlines, our customers, our
communities and our shareholders.
The Delta-Northwest merger is a combination of two airlines
with networks that are highly complementary with virtually no
overlap. This merger is about addition, not subtraction.
Linking Delta's extensive network in the eastern, southern and
intra-mountain U.S., Europe and Latin America with Northwest's
strong presence in the midwestern U.S. and Asia will provide
opportunities for growth as we leverage the network strength of
the two carriers.
This merger will provide numerous benefits for our people,
many of which otherwise could not be attained on a standalone
basis.
We have committed to the following: The employees of the
two companies will receive equity in the new company in the
form of fully vested, unrestricted stock, representing almost
10 percent of the value of the enterprise. This level of
employee ownership grant is unprecedented in the airline
industry.
Delta will maintain a top-tier profit sharing plan and
operational rewards program. For 2007, these provided Delta
employees with roughly $200 million in additional compensation.
Over time, we have committed to move all employees to
industry standard pay and benefits.
There will be no involuntarily job furloughs of U.S.-based
frontline employees as a result of the merger.
And we have also committed to continued provision of
competitive health care, time off, travel benefits and other
benefits.
Let me address more fully one additional commitment that we
have made: to fund the frozen defined benefit pension plans of
both companies fully.
Mr. Chairman, Delta recognizes and very much appreciates
the important role that this committee played in passing the
Pension Protection Act in 2006. In particular, we want to thank
Congressman Price for his leadership role in the original
legislation to enable us to save our DB plan. We remain
extremely grateful to this subcommittee and to Congress for
providing provisions in that legislation that enabled us to
preserve the Delta's defined benefit pension plan for nearly
91,000 Delta ground and flight attendant employees and
retirees.
Since the PPA was enacted, Delta contributions have totaled
approximately $128 million through July of this year. We fully
intend to maintain both the Delta and Northwest frozen defined
benefit plans following the merger.
In addition to the preservation of the frozen defined
benefit plans, Delta will also continue post-merger to provide
retirement benefits through defined contribution plans together
with our defined benefit plan funding. Importantly, the merger
will produce a financially stronger airline that is better able
to meet our retirement obligations and weather an extremely
challenging economic and competitive environment, including the
doubling of jet fuel during the past year.
Delta believes that a merger cannot be successful unless
its employees are fully supportive and engaged in making a
stronger airline. One extraordinary example of employee
engagement is the joint agreement Delta has already reached
with the Delta and Northwest units of the Air Line Pilots
Association. This joint contract, to take effect upon closing
of the transaction later this year, is unprecedented in the
airline history. Separately, the pilot groups have also
established a process designed to create a pilot seniority list
by the close of the merger.
This agreement and attainment of a joint seniority list is
a terrific testament to the leadership of ALPA and the
importance of working together in a collaborative fashion.
Mr. Chairman, thank you for this opportunity to appear
before you today. As you can see, Delta and Northwest have put
people first in pursuing this merger, because we are committed
to making Delta the best airline in the world for its employees
and its other stakeholders.
I look forward to answering your questions. Thank you.
[The statement of Mr. Kight follows:]
------
Chairman Andrews. Mr. Kight, thank you very, very much. We
appreciate your involvement.
Mr. Ford, welcome back to the subcommittee.
STATEMENT OF GARY FORD, ATTORNEY, GROOM LAW GROUP
Mr. Ford. Thank you, Mr. Chairman.
As the chairman mentioned, I am Gary Ford. I am a lawyer
here in Washington, but I am appearing on behalf of Northwest
Airlines today.
I have been, I say with some mixed feelings, working in the
pension and employee benefits area for more than 25 years.
Let me begin by saying, ``thank you,'' to the members of
this subcommittee on both sides of the aisle for your
persistence and hard work in crafting and ultimately enacting
the Pension Protection Act of 2006. From the point of view of
Northwest Airlines, the most important provisions in that very
important legislation are the ones that have alternative
funding rules for pensions in commercial airlines.
Under these rules, if an airline and its employees agree to
elect the new rules, then the airline is given an extra amount
of time to fund the existing liabilities of its pension plan.
Let's put this in context for Northwest Airlines. Recall
that in 2005 Northwest filed for Chapter 11 bankruptcy
protection and completed its restructuring process and
successfully emerged from bankruptcy in May of 2007. So the
Pension Protection Act falls right in that window, and I am
pleased to report that because you had the foresight to include
airline funding provisions in PPA, Northwest has been able to
retain all of its defined benefit pension plans after emerging
from Chapter 11, and as a result has not made a claim on the
PBGC, and no employee of Northwest has lost any of his or her
accrued pension benefit.
The members of this subcommittee and the full committee
should be commended for your efforts to craft and pass the
pension funding legislation that brought about this very real
positive result in the real world. Without it, Northwest would
certainly have had to terminate its pension plans in order to
be able to emerge from bankruptcy protection.
Since PPA was enacted, Northwest contributions to those
plans, covered by the PPA funding special rules, have totaled
about $87 million, and these plans will continue to be funded
as required by the Pension Protection Act rules.
Now, let me round out the picture of the employee benefits
at Northwest by saying on the pension front that the
obligations do not end with these three pension plans.
Northwest also funds 401(k) retirement plans for most of its
employees, both union and salaried. And for most of its IAM
represented employees, Northwest contributes to a separate
multi-employer plan.
So what effect would a Northwest-Delta merger have on
Northwest's employee benefit obligations and in particular on
its obligation to fund the three plans covered by PPA?
First, it is important to note that the funding
requirements and other rules applicable to these plans would
not be altered by the merger. In a merger of Northwest and
Delta, the combined company would have responsibility for
meeting all of the legal requirements, including the new
Pension Protection Act funding rules.
Second, there is a potential effect of the merger that
would greatly increase the security of Northwest's employee
benefits. If one examines the major claims that have been made
on the Pension Benefit Guaranty Corporation, a clear pattern
emerges. The major claims on PBGC are not principally a result
of something related to the pension plan. Rather, they are the
result of the financial distress, severe financial distress,
usually culminating in bankruptcy of the company that sponsors
the plan. Indeed, they are often driven by the financial
distress of an entire industry. Think about the steel and
metals industries. It is no exaggeration to say that the key to
securing employee benefits in the airline industry is
financially strong airlines that can shoulder the cost of these
benefits.
Now, the boards of directors at both Delta and Northwest,
as well as the management teams, have concluded that a merger
of Northwest and Delta would produce a financially stronger
airline. As Doug Steenland, the CEO at Northwest, put it, the
combined company will be more financially resilient, better
positioned to satisfy customer demands and better able to meet
the challenges of the future at home and abroad.
I will add to Mr. Steenland's list that a merger would have
an important benefit that was the focus of this hearing: A
stronger merged airline will be better able to fund its pension
and other employee benefit promises, avoid a PBGC takeover of
its pension plans, and provide reliable retirement security to
its employees, past and future.
In short, Northwest shares this subcommittee's goal of
protecting pensions of airline employees, and I hope this short
statement has been helpful in advancing your consideration of
that issue.
[The statement of Mr. Ford follows:]
Prepared Statement of Gary M. Ford, Principal, Groom Law Group
Good morning. My name is Gary Ford. I am a principal at the Groom
Law Group, located in Washington, DC and have practiced in the pensions
and benefits area for more than 25 years. I appreciate the opportunity
to testify before the Subcommittee this morning regarding the pension
plans that are maintained by my client, Northwest Airlines.
Let me begin by saying ``thank you'' to the Members of this
Subcommittee on both sides of the aisle for your persistence and hard
work in crafting and ultimately enacting the Pension Protection Act of
2006. From the point of view of Northwest Airlines, the most important
provisions of that important legislation are the alternative funding
rules for commercial airlines. Under these rules, if an airline and its
employee groups elect the alternative funding rules under PPA, then the
airline is given extra time to fund the existing liabilities.
On September 14, 2005 Northwest filed a voluntary petition for
bankruptcy under Chapter 11 of the United States Bankruptcy Code.
Northwest completed its restructuring process and emerged from Chapter
11 protection on May 31, 2007. I am pleased to report that, because you
had the foresight to include airline funding provisions in PPA,
Northwest has been able to retain all of its defined benefit pension
plans after emerging from Chapter 11 protection. As a result, Northwest
has not made a pension claim on the Pension Benefit Guaranty
Corporation. No Government money has been expended to cover Northwest's
pension costs and, most importantly, no employee of Northwest has lost
any of his or her accrued pension. The members of this Committee should
be commended for your efforts to craft and pass the pension funding
legislation that brought about this result. Without it, Northwest would
have certainly been forced to terminate its pension plans in order to
emerge from bankruptcy.
Since the PPA was enacted, Northwest's contributions totaled
approximately $ 87 million. These plans will continue to be funded as
required by PPA.
To round out the picture of Northwest's benefit arrangements, you
should also be aware that Northwest's employee benefit obligations do
not end with the three plans covered by the airline funding rules.
Northwest funds 401(k) retirement plans for most of its employees, both
union represented and salaried. For most of Northwest's IAM-represented
employees Northwest contributes to a separate, multiemployer pension
plan.
So what effect would a Northwest-Delta merger have on Northwest's
employee benefit obligations and, in particular, on its obligation to
fund the three pension plans covered by the PPA airline funding rules?
First, it is important to note that the funding requirements and other
rules applicable to these three plans would not be altered by a merger
with Delta Air Lines. In a merger of Northwest and Delta, the combined
company would have responsibility for meeting all legal requirements
applicable to the plans, including PPA's funding rules.
Second, there is a potential effect of the merger that would
greatly increase the security of Northwest's employee benefits. If one
examines the major claims that have been made on the PBGC, a clear
pattern emerges. The major claims on the PBGC are not principally a
result of something related to the pension plan itself, but rather they
are the result of the severe financial distress, culminating in
bankruptcy, of the company that sponsors the pension plan. Indeed, they
are often driven by the financial distress of an entire industry. It is
no exaggeration to say that the key to secure employee benefits in the
airline industry is financially strong airlines that can shoulder the
cost of those benefits.
The boards of directors at Northwest and Delta, as well as the
management teams at both airlines, have concluded that a Delta-
Northwest merger would produce a financially stronger airline. As the
Chief Executive Officer of Northwest, Douglas Steenland, stated
recently, ``the combined company will be more financially resilient,
better positioned to satisfy customers' demands, and better able to
meet the challenges of the future at home and abroad.'' I will add to
Mr. Steenland's list of benefits of a merger an important benefit that
is the focus of this hearing: a stronger merged airline will be better
able to fund its pension and other employee benefit promises, avoid a
PBGC takeover of its pension plans, and provide reliable retirement
security to its employees, past and future.
Northwest shares the Subcommittee's interest in protecting the
benefits of airline employees. I hope that this short explanation of
the current status of Northwest's benefits plans has been helpful. I
will be happy to answer any questions that the members of the
Subcommittee may have.
______
Chairman Andrews. Thank you very much, Mr. Ford.
Final witness is Mr. Kochan.
Welcome to the committee. We look forward to your
testimony.
STATEMENT OF THOMAS KOCHAN, CO-DIRECTOR, INSTITUTE FOR WORK AND
EMPLOYMENT RESEARCH
Mr. Kochan. Thank you, Mr. Chairman, members of the
committee. I appreciate the opportunity to testify on this
important set of issues facing workers and two very key firms
in the airline industry.
I am going to base my comments today on research that my
colleagues and I have been doing on the airline industry over
the last eight years as part of a larger project on the airline
industry that is going on at MIT.
My specific comments are going to talk about the effects of
a potential merger on labor and employee relations at the
merged organization and then, in turn, what our research tells
us will be the effects of labor and employee relations on the
financial performance of the firm and on employee interests.
Let me summarize my comments very succinctly.
If the labor and employee relations issues that confront
the merged organization are not addressed satisfactorily prior
to or as part of the merger process, the merged organization is
likely to experience intense and prolonged labor management
conflict over organizing and representation rights and over the
negotiation of contracts for those groups that choose to be
represented.
If this happens, our research tells us very clearly that
the effects of these conflicts will be to produce low levels of
productivity, poor customer service, significant financial
pressures on the airline and, if extended over time, could lead
to a return to bankruptcy for these organizations.
On the other hand, there is a potential here. If these
issues are addressed effectively as part of the merger process,
then we believe that there is particular upside potential to
improve customer service, strengthen the airline's financial
performance and, indeed, allow employees to move toward the
industry standards that Mr. Kight indicated.
So I think there is an opportunity here for the
organizations, if they do this right, to really address what is
a deeper crisis in the airline industry today.
I don't have to recite all the facts that are in the
written testimony about the job losses, the financial losses,
the cuts in wages and benefits, the number of pension plans
that have been terminated and turned over to the PBGC, but,
clearly, that is the backdrop for the crisis that is likely to
encounter this merged organization is these issues are not
addressed.
Let me just very quickly illustrate how this is likely to
play out. As President Friend mentioned, there have been
organizing efforts of flight attendants at Delta. We have very
different cultures between Delta and Northwest. Northwest is a
highly unionized carrier; Delta, the only employee groups that
are organized are the pilots. But if organizing then occurs
again, our prediction is that you will have a very tightly
controlled--contested process.
The numbers add up to the fact that we are likely to see an
outcome that is somewhere within 10 percent on one side or the
other of a union victory or a union loss. That is going to lead
to a highly contested process, a long drawn out process, as has
been the pattern in the past and prolonged conflict. That kind
of conflict is exactly what our research shows leads to these
dire economic consequences for the firm, for customers and for
employees. And, indeed, that conflict is likely to carry over
into the labor negotiations process itself and further put the
company at risk.
Now, I believe this negative scenario can very easily be
avoided if three things are done. First, if the organization's
union and management groups involved address the questions of
how they are going to deal with representation issues
effectively, I believe they can be done in a more
collaborative, or at least in a more respectful and less
legalistically encumbered process.
Second, if the parties redesign their labor management
relations process to deal with the negotiations process using
state-of-the-art techniques that have proven their worth in
other industries, then I believe they can also improve the
negotiations process and get on with the deeper problem of then
addressing what we know is so critical and that is building a
positive workplace culture that emphasizes customer service,
that gets the full motivation of employees exercised in serving
their customers.
So, in summary, I believe that the Congress, the
administration, the parties themselves face either a crisis or
an opportunity. If left unto their own devices and if past
practices prevail, then we are going to see profound conflict
in this merged organization that will put the merger at risk
and put the jobs and the pensions of employees at risk.
If action is taken now, prior to the merger, if the merger
is conditioned on the willingness and the ability of the
parties to address these issues, then I believe they can take
steps that have been well documented in other parts of the
industry to improve performance, improve customer service and
secure the jobs and pensions of the employees.
Thank you, Mr. Chairman.
[The statement of Mr. Kochan follows:]
Prepared Statement of Thomas A. Kochan, George M. Bunker Professor of
Management, Co-Director, MIT Institute for Work and Employment Research
My name is Thomas Kochan and I am a professor of management at the
MIT Sloan School of Management and Co-Director of the MIT Institute for
Work and Employment Research. My comments today are derived from a
study of airline labor and employee relations that a group of us has
been carrying out over the past eight years under the auspices of the
MIT Global Airline Industry Project.\1\
---------------------------------------------------------------------------
\1\ The full results of our research will be summarized in Greg
Bamber, Jody Hoffer Gittell, Thomas Kochan, and Andrew vonNordenflytch,
Up in the Air: How Airlines can Compete by Involving their Workforce.
Cornell University/ILR Press, forthcoming, Fall, 2008.
---------------------------------------------------------------------------
My specific comments relate to the likely effects of the proposed
merger between Northwest Airlines and Delta Airlines on labor and
employee relations in the merged organization and, in turn, the effects
of labor and employee relations on the organization's financial
performance, customer service, and employment outcomes. My main point
can be summarized succinctly.
If the labor and employee relations issues that will confront the
merged organization are not addressed satisfactorily prior to or as
part of the merger process, the merged organization will experience
intense and prolonged labor management conflict over organizing rights
and representation and in negotiations of labor agreements for those
occupational groups that choose to be represented. If this happens, our
research, and recent experience of merged airlines predict the merged
firm will experience low productivity, poor customer service, and
significant financial losses that could lead to a return to bankruptcy.
If, on the other hand, these issues are addressed successfully prior to
the merger, the new organization has the potential for improving these
economic outcomes for its shareholders, employees, and the customers
and communities it serves. Therefore, I urge the Congress and the
Administration to insist that the key labor and employment issues which
I will discuss in more detail below be addressed as part of the
business plan for the merged organization and that the merger only be
approved if all the parties involved demonstrate a commitment to
implementing this plan.
Background: The Airline Industry is headed toward a ``Perfect Storm''
Between 2001 and 2005 airlines in the U.S. cut over 100,000 jobs
and lost $30 billion dollars. Employees lost over $15 billion in wages.
Sixteen pension plans covering approximately 240,000 employees were
terminated and turned over to the government's Pension Benefit
Guarantee Corporation.\2\ Morale plummeted to all time low levels.
Customers have endured increased traffic delays and more lost baggage,
and customer complaints are rising. The air traffic control system
needs a major technological upgrade, airport congestion is stressing
the system, and air traffic controllers can't be hired and trained fast
enough to replace those retiring. Now, in the face of fuel prices that
have risen over 80 percent in the past year, all airlines (with the
exception of Southwest, the only company that was able to hedge against
fuel price increases) are once again experiencing deep financial
losses, employees are experiencing further job cuts, and customers and
communities are facing further cuts in service. So on all these
dimensions the nation's air transportation system is being stressed and
perhaps approaching its limits. The prospect for a perfect storm in
which the pressures explode together is growing. The pressures are
likely to come to a head when labor contracts covering employees who
took the deepest cuts in wages and benefits come due for renegotiations
in late 2009 and early 2010.
---------------------------------------------------------------------------
\2\ Carolina Brionnes and Holly Myers, Short Changed: How airlines
can repay taxpayers for billions of subsidies by improving jobs,
security, and services.'' Los Angeles Alliance for a New Economy:
Working Partnerships USA, p. 12.
---------------------------------------------------------------------------
Labor Relations Challenges/Conflicts Associated with the Delta-
Northwest Merger
The pending crisis could come even sooner for Delta and Northwest
if their proposed merger is approved and moves forward without
attending to the labor and employee relations challenges and likely
conflicts that the merged organization will experience. The merged
organization will bring together two firms with very different
organizational cultures and labor relations traditions and systems.
These different cultures will be difficult to integrate without
experiencing prolonged conflicts and further declines in passenger
service.
Except for its pilots, Delta is largely a non-union company while
nearly all eligible Northwest employees are unionized. Historically,
relations between Northwest and its employees' unions have been among
the most adversarial in the industry. Thus, one of the first issues
that employees in the merged organization will need to decide is
whether or not they want to be organized and, if so, by which
organization. Delta Airlines has a long history of seeking to avoid
union representation of its employees. Flight attendants, for example,
have mounted several organizing drives at Delta in recent years that
met with strong resistance from the company. The top management team
from Delta is expected to manage the merged organization and, if past
history is an indication, it will be determined to avoid unionization
of flight attendants in the merged organization. This will undoubtedly
produce another drawn out and highly contested organizing process for
flight attendants and other employee groups.
While it is not possible to predict the results of an organizing
drive with certainty, the numbers involve predict a close and therefore
highly contested election. Delta now employees approximately 13,700 and
Northwest employs approximately 8,600 flight attendants. Presumably the
same approximate numbers or proportions will be employed in the merged
organization. Under rules of the Railway Labor Act and its
administrative agency, the National Mediation Board, to win
representation rights a majority of all employees in the unit (11,151)
must vote for representation. If national trends among already
represented employees carry forward, approximately 80 percent of former
Northwest employees (6,880) are likely to favor representation. If the
same number of employees vote to be represented as did so in the last
election at Delta (32 percent or 4,384), the union will just barely
gain a majority of the unit (11,264). This of course is only one
possible outcome. The point is not to predict a union victory or loss.
The point is all parties will expect the outcome to be uncertain but
close. These are exactly the conditions that lead to the most intensive
and highly contested campaigns and extended legal appeals by the losing
party.
Likely Consequences of Prolonged and Intensive Conflicts
Our research has documented the consequences of a low trust
workplace culture and a high or prolonged level of labor management
conflict. Using data from 1987 to 2002 we tracked the effects of labor
relations on the productivity, service quality, and profits of large US
airlines and found that a low trust workplace culture and prolonged
conflict in labor negotiations were associated with lower productivity,
service quality, and profitability.\3\ If, as we expect, the merger
produces a similar period of low trust and high conflict, our results
predict the same negative economic consequences for the merged
organization. Given the fragile economic condition of these two
organizations, there is little room for further decline in economic
performance.
---------------------------------------------------------------------------
\3\ Jody Hoffer Gittell, Thomas Kochan, and Andrew vonNordenflycht,
``Mutual Gains or Zero Sum? Labor Relations and Firm Performance in the
Airline Industry, Industrial and Labor Relations Review, vol. 57, no.
2, 2004, pp. 163-179.
---------------------------------------------------------------------------
How this Negative Scenario Might be Avoided
There is an alternative. Our research shows that there are steps
that can be taken to build a sustainable airline that addresses the
interests of customers, employees, and investors and that contributes
to the national interest of having a safe, reliable, and profitable
airline industry. Our basic finding, drawn from both quantitative and
qualitative research, suggests that to avoid the perfect storm and to
achieve a sustainable recovery airlines need to (1) build a positive
workplace culture in which the different occupational groups work
together in a coordinated fashion, (2) redesign union-management
processes for deciding and resolving worker representation issues and
contract negotiations to avoid the long delays and protracted conflicts
that have come to characterize both processes, (3) agree on a long term
compensation plan in which wages of all employee groups (and managers
and executives) increase in a steady, predictable fashion in
relationship to overall economic trends in cost of living and in the
revenues and profitability of the airline.
Given these findings, the federal government should not approve any
merger unless the business plan for the merged organization specifies
how management and labor leaders will deal with the following issues.
1. Management and labor leaders should agree on a process for
determining whether and/or which unions or associations will represent
different occupational groups in the merged organization that avoids
delays, conflicts, and negative/disparaging anti-union or anti-
management rhetoric or actions.
This could be done in a number of ways. A growing number of
companies and unions in other industries have negotiated private
``rules of conduct'' governing behavior and procedures for union
elections that eliminate use of disparaging comments by all parties,
minimize delays and legal battles, and/or provide for neutrality or
other conditions that ensure employees can make their own decisions on
whether or not to be represented. A similar process and agreed upon
rules of behavior could be worked out among the unions and the company
and thereby significantly reduce the time, stress, and litigation costs
associated with this process.
2. Management and labor leaders should have a well developed plan
for improving the culture of the workplace so that different
occupational groups (ground crews, pilots, flight attendants, etc.)
work together in a coordinated fashion with their managers to deliver
reliable, high quality customer service.
If the organizing process moves forward in the traditional highly
contested and drawn out fashion, the likely outcome (regardless of
whether a majority choose union representation or not) is a workplace
culture fraught with tension, bitterness in the aftermath of the
election ,and a workforce that continues to carry over the traditions
and cultural features of the organizations from which they came. This
has been the experience at the most recent large merger--i.e., the
merger of US Airways and America West. Figure 1 illustrates the result:
Nearly two years after the merger, the new US Airways ranked at the
bottom of its peer airlines in on time arrivals, baggage losses, and
customer complaints. This should serve as a clear object lesson for the
new Delta and any other airlines that seek to combine organizations
with different organizational cultures.
It is not impossible to avoid this same outcome. Continental
Airlines demonstrated how it is possible to turn around an extremely
negative and bitter workplace culture and labor relations environment
after a new management team took over and brought the company out of
bankruptcy in 1994. Our research shows that it was successful in doing
by communicating extensively with its employees, negotiating fair but
efficient labor agreements in a timely fashion, and introducing
incentives and rewards for meeting on time performance and other goals
that affected both the company's bottom line and the quality of
customer service. The record speaks for itself. So a clear plan for
learning from the Continental experience should be required.
3. Management and labor leaders should negotiate long term labor
agreements that gradually restore workers wage and benefits and secure
the pension plans that remain in place by linking compensation
adjustments to increases in the cost of living, management and
executive compensation increases, and the financial performance of the
firm. The parties should also be required to develop a process for
assuring future agreements are negotiated in a timely fashion without
resort to work stoppages.
If the different employee groups band together to demand their wage
and benefits be restored to pre-concession levels, the prospect for a
strike that will significantly disrupt passenger service is very high
and will create strong pressure for government officials to turn to a
Public Review Board and/or some other form of government intervention
to resolve the dispute. Thus, waiting to deal with these issues, or
dealing with them in the traditional manner, will put the company at
risk and risk disrupting airline service to major cities such as
Detroit, Atlanta, Minneapolis-St. Paul, and a number of smaller cities
in which Delta and Northwest are now the major service providers. Steps
to avoid this need to be taken now.
There are ways to reduce these risks. An increasing number of labor
and management negotiators around the country have turned to state of
the art ``interest based'' negotiations processes to resolve their
conflicts and search for innovative, mutual gain solutions to their
problems. Indeed, several years ago, an airline industry labor-
management task force developed a set of consensus recommendations on
how to improve negotiations in this industry.\4\ Adapting and
implementing these consensus recommendations and state of the art
practices from other industries would be a practical way of achieving
the type of commitment called for here.
---------------------------------------------------------------------------
\4\ See, Options for Improving Negotiations and Dispute Resolution:
A Report of the Working Group on Airline Labor Relations, March, 2004.
---------------------------------------------------------------------------
The approach taken by the pilot unions from Delta and Northwest may
serve as a model for other groups. Their respective unions, in
conjunction with company representatives, have negotiated a joint
agreement that restores some of the wages and benefits given up in
recent years. Moreover, the unions have agreed on a process for
integrating their seniority lists that provides for binding arbitration
if the union representatives cannot reach an agreement on their own. By
taking these proactive steps the parties have ensured that pilot labor
relations will not impede the merger transaction nor risk a long drawn
out representation or negotiations process after the transaction is
consummated.
In summary, I believe we are facing a pivotal moment in the history
of American aviation. Simply approving the merger and letting past
patterns play out as expected will likely produce a financial crisis
for the merged company and put more jobs, pensions, and services at
risk. These consequences can be avoided by taking actions now to put in
place practices that have demonstrated their value in airlines and in
other industries. How government, management, and labor leaders handle
this opportunity will determine whether we avert or speed up the
arrival of the perfect storm looming on the horizon.
FIGURE 1.--SERVICE QUALITY COMPARISONS ACROSS US AIRLINES
----------------------------------------------------------------------------------------------------------------
Consumer Complaints On Time Arrivals Mishandled Baggage
----------------------------------------------------------------------------------------------------------------
Southwest........................................ 0.3 80.4 6.0
Alaska........................................... 0.8 71.5 6.6
JetBlue.......................................... 0.8 69.3 5.8
Continental...................................... 1.1 74.7 5.7
Northwest........................................ 1.5 69.7 5.1
American......................................... 1.8 69.5 7.4
Delta............................................ 1.9 76.9 7.7
United........................................... 2.3 71.8 6.0
US Airways....................................... 3.4 68.0 8.8
----------------------------------------------------------------------------------------------------------------
Customer Complaints = complaints per 1,000 passengers, January-September, 2007.
On Time Arrivals = Percent total on time arrivals, November 2006-October 2007.
Mishandled Baggage = Reports per 1,000 passengers, January-September, 2007.
Sources: Transportation Department and Bloomberg Financial Markets. Reprinted from Jeff Bailey, ``Fliers Fed Up?
The Employees Feel the Same, New York Times, December 22, 2007, p. A16.
______
Chairman Andrews. Mr. Kochan, thank you very much.
I would like to thank each of the witnesses, and we will
begin with the questioning of the witnesses.
Mr. Kochan, I wanted to extend your argument a bit, that
you argue that, I think pretty persuasively, that a cooperative
approach to labor management relations tends to yield success
for the airline, which tends to yield more contributions to the
pension fund, which tends to yield less exposure to the
taxpayers and the PBGC.
And I notice that on pages four and five of your testimony
you indicate that one of the pre-merger topics that should be
negotiated is long-term labor agreements that gradually restore
workers' wage and benefits and secure the pension plans that
remain in place by linking compensation adjustments to
increases in the cost of living, management and executive
compensation increases and the financial performance of the
firm.
Do you think that that sort of requirement should be a
precondition to the Department of Justice approving a merger?
Mr. Kochan. It would be unusual for the Department of
Justice to address these issues as a condition for a merger,
but I believe it is absolutely essential. If the Department of
Justice's responsibility is to judge whether this merger is in
the interest of the industry and the interest of the American
public, then absolutely these issues should be addressed as
part of the merger process and made a condition----
Chairman Andrews. Now, I would assume you would agree that
under present law the Department of Justice has the discretion
to consider these factors. Would you agree with that?
Mr. Kochan. I agree that the Department of Justice has the
discretion to do so. It will take----
Chairman Andrews. Do you think that we should give them the
statutory mandate that they require these--that they consider
these issues?
Mr. Kochan. I think that is an issue particularly relevant
for your committee. I think it is time that we start to put the
labor and employee issues on the same level of concern as we do
competitive issues, and I think that would be a positive
development for public policy.
I would also say that, as Mr. Kight indicated, we have an
example. The pilots, because they are both represented, have
worked out a very creative agreement to deal with these issues
upfront, to start to restore some of the wages and benefits
that they had given up in the past and, as he indicated, an
agreed upon process with arbitration to work out the merger of
the seniority rules. That is exactly the kind of proactive
effort that I think would be in order----
Chairman Andrews. How do you think that process should go
forward if there is not collective bargaining representation?
The example that you use, pilots in both existing airlines are
represented. What should we do in a circumstance where at least
one of the parties is not represented through collective
bargaining?
Mr. Kochan. I believe we should instruct the National
Mediation Board to work with the parties in the representation
election process to come up with rules of conduct, as some
organizations have done in other industries, to limit the
disparaging comments, to limit the time required to have a
rational process for deciding representation. If those
employees----
Chairman Andrews. I agree with that completely, and,
frankly, for the record, I am troubled by the proposed rules
from the NMB regarding changes in this, but I am asking you a
different question. If you are at a point where a merger has
been proposed and there is not representation of the employees
on at least one side, and there is really not time for a
representation election given the exigencies of the merger
proposal, how should the Department of Justice proceed in
evaluating the issues that you have raised with respect to that
hypothetical merger?
Mr. Kochan. The organization, the company has to put
forward a business plan. The business plan should be evaluated
with respect to the issues of employee and labor relations that
I have identified. They should work with the existing unions at
Northwest and where appropriate with existing unions at Delta,
as they have, and they should identify how they are going to
manage the representation process so that there isn't a long,
prolonged conflict.
You can hold the company to those standards. Even if there
isn't representation of Delta employees, there clearly is
representation on the part of Northwest employees. They can
have those discussions, they can identify a process, they can
allow the democratic process of election go forward.
Chairman Andrews. Can I ask you one other question? If this
was made a condition of the merger and then later there was a
violation of the condition, what is the remedy?
Mr. Kochan. I think that is up to the--I would leave that
up to the National Mediation Board. I would make sure that
there are strong penalties associated with it. You can also
have a process by which the parties agree to arbitration if
there is a violation. As some parties have done in pre-
representation processes, they have a neutral arbitrator or a
panel of arbitrators rule on violations, and then the
arbitrators are responsible for coming up with the appropriate
remedy to make people whole. I think that process could go
forward very efficiently.
Chairman Andrews. I appreciate your answers to my
questions, and I would turn to the gentleman from Minnesota for
five minutes.
Mr. Kline. Thank you, Mr. Chairman.
Again, thanks to all of our witnesses today.
Mr. Ford, in his testimony, Mr. Roach raised, kind of, an
alarming picture. I believe he said that if sometime in the
future a combined Delta-Northwest Airline were to fail, it
would burden the PBGC with more than $15.6 billion in
liability.
I was under the impression that a fair amount of that was
funded and not unfunded. Do you know? Can you address that for
us?
Mr. Ford. Yes, sir----
Mr. Kline. Microphone.
Mr. Ford. Yes, sir, Mr. Kline. The number that Mr. Roach
included I think is a gross liability number that in the
unlikely, and we all hope, event that never occurs, if there
were termination of the combined plans, the combined
liabilities were over $15 billion. But that is not the burden
on PBGC. The PBGC, when a plan terminates, takes the
liabilities, and they take the assets. And you have to subtract
the assets from the liabilities to get the net difference that
would be the PBGC's responsibility.
So I think that would not add anything close to the $15.6
billion to the PBGC deficit.
Mr. Kline. So, for example, there were $11 billion in the
plans, then the liability of the PBGC would be $4 billion or
$4.6 billion, something like that.
Mr. Ford. That is correct.
Mr. Kline. Okay. I thought that was--seemed a little bit
large.
Clearly, we are looking to see from a management
perspective, and I would hope from a labor perspective, that we
have a strong airline that comes out of this that would be less
likely to have furloughs and so forth. Do you--but focusing
strictly on retirement benefits, do you believe that the merger
would make future retirement benefits for Delta and Northwest
stronger or more in danger?
Mr. Ford. As I mentioned, and you can look at the big
claims on PBGC, they have to do with financial distress of the
companies and usually the whole industry that the pension plan
existed in, not with respect, usually, with problems with the
pension plan itself.
So the key here is that the boards of directors and the
management of these companies who have a lot at stake and a lot
of expertise in the industry have judged the merger to produce
a stronger airline. I would say that a stronger airline means
more secure retirement, and, more broadly, a stronger airline
industry means more secure retirement across the airline
industry.
Mr. Kline. Okay. Thank you.
Mr. Kight, I want to continue on the same theme here. Is
the likelihood that Delta or Northwest would have to terminate
its remaining pension benefits less or greater in the face of
these really unprecedented fuel prices if a merger is not
consummated? Again, it is the question of strength.
Mr. Kight. Thank you. I agree very much with what Mr. Ford
just said. The key here is the strongest company possible to be
able to fund these benefits going forward.
Certainly, the challenges created by fuel have created
challenges for everybody, but the point that we believe is the
right one is that the combination of these two companies will
make a stronger company, and that stronger company will be
better able to fund these benefits going forward.
Mr. Kline. And, therefore, better ensuring the likelihood
that those pension benefits could be met. Well, we certainly
would hope that was the case.
Now, it is, sort of, interesting here that the pilots are
not represented here at the table. As I understand from talking
to leaders in the Northwest side of ALPA, of that union, the
union leadership on both sides has been supportive of this
merger.
Is that correct, Mr. Kight?
Mr. Kight. That is correct. As Mr. Kochan has alluded to,
and I did in my testimony, we have reached an unprecedented
agreement with the leaderships of both ALPA units, both at
Delta and at Northwest, for a joint contract when the merger
takes place. And both leadership groups at both Northwest and
Delta ALPA are very much supportive of the merger going
forward, as are many Delta employees that I know of and speak
with often.
Mr. Kline. Well, thank you. I am--as I mentioned in my
comments, I am concerned about the results of this thing. A lot
of my constituents are employees of Northwest Airlines, and we,
sort of, tremble at the thought of that icon leaving. But at
the end of the day, if we maintain a strong hub and keep those
jobs and the pensions are stronger, and that seems to be a
point of some dispute here between the different witnesses
whether those pensions would be in more or less danger because
of this merger, that is a matter of some interest.
I happen to believe, having worked very hard on the Pension
Protection Act, that a stronger airline would be more likely to
be able to protect those pensions.
I see my time has expired, Mr. Chairman. Thank you.
Chairman Andrews. Thank you.
The gentleman from Michigan, Mr. Kildee, is recognized for
five minutes.
Mr. Kildee. Thank you, Mr. Chairman.
First of all, I would hope that the attorneys in the
Justice Department who look at this merger were not chosen or
screened by Monica Goodling. I hope there will be an objective
decision made there. I do worry seriously about the Justice
Department now, especially in the last few years.
Let me ask a question of Mr. Roach. Could you expand on
your plea that Congress address the underfunding of PBGC?
Mr. Roach. Yes. We--again, we met yesterday with the
officials of PBGC and there is about a $13.1 billion deficit
currently and $55 billion in assets. When they take in a plan
they have to evaluate those assets and possibly sell those
assets off at the market value at the time of those assets.
Clearly, in the case of Northwest and Delta, they have had
to go to the Pension Protection Act because they failed to
properly manage those assets in the beginning. We don't know
the quality of those assets today. The PBGC has taken on quite
a few underfunded plans. If in fact Northwest and Delta merge,
then there is a possibility of termination because the history
of airline mergers has not been very successful. You cannot
name very many airline mergers in aviation history that have
been successful. Most recently, American Airlines and TWA.
So the more--with oil on the rise and with the possibility
of pension terminations, there is a grave concern about how
this is going to get funded. The officials at PBGC today are
scrambling to change the asset mix, because they know under
current circumstances, with current assets and the amount of
people that are currently in these plans and the amount of
people that can come onto these plans, there is a possibility--
there is a strong possibility that they will, at one point, run
out of assets to fund the liabilities.
And so it is a very important concern, especially when
airlines that go into bankruptcy has been the history, which
started--the major one was United Airlines that went and found
a way to terminate all their pension plans even though they had
a lot of assets, unencumbered assets, that the pension
liabilities on the bottom of the totem pole, that they take
care of the bondholders and the vendors and all these other
people, and the employees and the PBGC are on the bottom of the
list and usually wind up with 10 or 15 cents on the dollar and
some sort of funny paper like CDOs that Fannie and Freddie
have, that they cannot do anything with.
And so it is a very important concern, and it is a concern
of the PBGC over people working very hard, and it is certainly
a concern of ours. It is a concern of mine as a union
representative, and it is a concern of mine as a participant in
the PBGC. I believe Pat Friend and myself are the only ones
that are participants. It is very nice to talk about how things
are going to go along if it doesn't affect you.
One other point I would like to make is the fact that Mr.
Kight indicated that these pension plans will be funded. Nobody
has mentioned a multi-employer plan that the Northwest
machinists are currently involved with. That is a good
question, is that going to be funded? In the view of the fact
that Mr. Anderson and Mr. Steenland have refused to talk to us,
we haven't got an answer to that question, and that is the
current plan that 12,500 machinist employees are currently
involved with and stand to lose a considerable amount of
benefits going forward if those plans are not funded.
Mr. Kildee. Thank you for a very clear answer. Cornell
educated you well. I appreciate that.
Let me also ask Ms. Friend, what should Congress do to
address the general obligations of the successor employer? In
other words, when you merge there is a successor employer. What
obligations do they have to the one part of the merger? Should
Congress address that in some way?
Ms. Friend. That issue is clearly addressed in our
Northwest collective bargaining agreement, what the obligations
are of the successor company. The difficulty that the Northwest
flight attendants face here is that that negotiated protection
is only as good as long as they retain collective bargaining
rights. If, in fact, their collective bargaining rights, over
60 years of collective bargaining rights, are extinguished as a
result of this merger, then they lose all of that negotiated
protection.
It is, I think, a bit late in this process of this merger,
although certainly going forward if there is further
consolidation, what Congress should be considering, we believe,
is reinstatement of some of the labor protective provisions
that were discarded post the Airline Deregulation Act of 1978.
Mr. Kildee. Thank you very much.
Thank you, Mr. Chairman.
Chairman Andrews. Thank you, Mr. Kildee.
The chair recognizes the gentleman from Louisiana, Mr.
Boustany, for five minutes.
Dr. Boustany. Thank you, Mr. Chairman.
Mr. Kight, sitting here today one might easily walk away
with the conclusion that all of Delta and in fact Northwest's
labor force, particularly its unionized workers, oppose this
merger. Is that the case?
Mr. Kight. Not at all. As we have talked about already, the
ALPA units of both carriers strongly support this merger. I
have submitted--thanks to Chairman Andrews, submitted into the
record today a statement of support by the Delta Board Council,
a group of employees from each major work group elected by
their peers to represent them to management and the board and
many individual employees at Delta that I have talked to
support it. I hear the same thing from my counterparts at
Northwest in terms of a lot of employees who have great support
for this merger going forward.
Dr. Boustany. Thank you.
Also, Mr. Kight, if Delta was not permitted to merge, do
you believe its employees would be better off in the short term
or, more importantly, in the long term?
Mr. Kight. I don't believe that. I think this merger will
make us stronger. Together, the combined companies will have
almost $7 billion in liquidity. We will have the best balance
sheet in the industry, the lowest debt. We will have a much
better balanced revenue portfolio, kind of, in terms I can
relate to. It is like having a well-balanced 401(k) portfolio.
We will be in Asia, we will be in Europe, we will be in Latin
America, all over the U.S., and so we will have a much better
ability to withstand the various ups and downs throughout the
world economies that affect travel so much.
Dr. Boustany. Can you clarify for me; has any airline ever
engaged its work groups in advance of a merger, as you have
attempted to do with Delta and Northwest pilots?
Mr. Kight. We are not aware of that situation ever
occurring before. We believe this is unprecedented in the
history of the industry.
Dr. Boustany. Thank you.
And one final question: Are you at liberty to describe any
commitments you have made to Northwest employees about their
futures with the company regarding jobs, salaries, benefits, so
forth?
Mr. Kight. We have made the commitment very clearly that
there will be no job losses on frontline employees as a result
of this merger. I know Mr. Roach talked about reservation
employees from Minnesota having to move to Atlanta. That is not
what we have communicated to those employees at all; in fact,
quite the contrary.
We have made numerous commitments on comp and benefits
issues, including the granting of nearly 10 percent of the
equity of the company upon closing to the employees of the
company, commitments to move to industry standard pay and
benefits, commitments to fully fund the frozen pension plans
that exist at both companies, et cetera.
Dr. Boustany. Thank you.
And, Mr. Ford, we have heard testimony that if a combined
Delta-Northwest Airline were to fail, there would be the
possibility that the responsibility for benefits under its
pension plans would be thrust upon the PBGC. Let me ask you
this: What would happen to these plans if, without merging,
either of these carriers failed?
Mr. Ford. Exactly the same thing. The merger does not
increase the exposure of the PBGC by a nickel. Each company has
liabilities for pensions. The combination of those two numbers
adds up to the same liabilities that the separate companies had
before the merger. I think the issue is, what about risk. Does
this improve the ability to avoid a termination in the first
place? And the boards of directors of both of these companies
with a lot at stake have determined that it does.
Dr. Boustany. I appreciate that clarification.
And, finally, for Mr. Ford, what, if any, was the effect of
Northwest airing and emergence--and emerging from Chapter 11 on
its pension benefits? What was that effect? And has any
Northwest employee lost any part of their accrued pension
benefit because of this bankruptcy?
Mr. Ford. No. Again, because of your hard work on both
sides of this committee and the Pension Protection Act
provision for commercial airlines, Northwest was able to keep
its pension plans. They are in existence today. The benefits
people have earned under them up to the date of the PPA
changeover have been preserved in full.
Dr. Boustany. Thanks for that clarification.
Mr. Chairman, I yield back.
Chairman Andrews. Thank you very much.
The chair recognizes the gentleman from Illinois, Mr. Hare,
for five minutes.
Mr. Hare. Thank you, Mr. Chairman.
Mr. Kight, I am a little confused, and maybe you could help
me out here a bit.
You talk about the, and I was glad to hear the, Air Line
Pilots Association, the two unionized groups and working those
out. I am troubled by this: Is it Delta's position that the
employees should not be able to vote in the representation
election? Because let me just ask here: If an election is held
for union representation following the merger, are you going to
be encouraging employees to ``rip up their voting instructions,
give a rip, don't click, don't dial''? I mean, is this what we
can expect for the employees that want to organize?
Mr. Kight. First of all, let me just point out that I am
not the Railway Labor Act or NMB expert at our company.
Mr. Hare. Right.
Mr. Kight. I know that Richard Anderson has testified
extensively about this before, and I would generally refer
members of the committee back to that testimony.
Mr. Hare. Could you please maybe have him send a letter
to--maybe to myself and members of the committee? I would like
to know what Delta's position is if this merger were to occur
in terms of are they going to be going out of their way, as
they did, to give a rip, don't click and don't dial? I would
like to know that, because I think that is terribly important
for the people, and I think that has a lot to do with the
merger.
Mr. Ford, let me ask you, is Northwest's position that
employees should not vote in a representation election?
Mr. Ford. I am an ERISA lawyer. I don't speak for Northwest
on labor issues for, among other reasons, I don't know anything
about them. So I will have to defer that question.
Mr. Hare. Okay. Well, again, I would like to see if
somebody from Northwest would be willing to give us something
in writing. The whole point to having a representation election
is giving people the opportunity. But when the company goes out
and posts signs to rip up the ballots, don't click, don't dial,
it seems to me to be going out of their way to do everything
they could to possibly avoid people being able to be
represented by--with a collective bargaining agreement. And I
hope that that is not going to be part of the process.
Mr. Kight, going back to you, Mr. Roach brought up a
question that he says he is having a very difficult time
answering, and you couldn't answer the one on this, perhaps you
can answer his.
He was asking about the pensions, I believe, Mr. Roach,
correct, and you said you are having a difficult time getting
an answer from anybody that would--is there any way you can
answer Mr. Roach's question as to what that situation is going
to be?
Mr. Kight. Certainly. The question that Mr. Roach asked, as
I understand it, is that what will happen to--what commitments
are we willing to make about the contributions that Northwest
currently makes to the national pension plan of the IAM for
IAM-represented employees?
First, it is important to understand that from the
company's perspective, from Northwest's perspective, that
contribution is essentially the same as a contribution to a DC,
defined contribution plan. It is a flat percentage of payroll
that is paid for by Northwest to the IAM pension plan. That
percentage is about five percent of IAM-represented payroll.
In our system that we use, we contribute up to seven
percent on behalf of employees. So, from our perspective, the
level of contribution that Northwest makes to the IAM plan
isn't an issue.
To the question of whether contributions will continue into
that plan or not will be determined by the representation
process that will occur following the merger and whether the
employees continue to be represented by the IAM.
Mr. Hare. Ms. Friend, let me just ask you this, as I know
it is a hypothetical, but given--if the playing field were
level and the flight attendants had an opportunity to vote in a
representational election without the company going so far out
of its way to rip up the ballots and do all this other kind of
what I believe is clearly nonsense to do, people should have
the right, it would seem to me, fundamentally, if you can
decertify a union with 50 plus one, you should be able to join
it with 50 plus one. You don't need all this outside effort
going on.
Do you think the flight attendants without this probably
would have had--do you think the results would be different?
Ms. Friend. I think they would absolutely be different. I
mean, in face of this overwhelming campaign, voter suppression
campaign, still, almost 40 percent of the Delta flight
attendants did participate in spite of every effort by
management to dissuade them from participating in the voting
process. That and the archaic rules of the National Mediation
Board, which requires participation by 50 percent plus one of
the eligible units in order to certify a union conspire,
really, to prevent employees having a free ride to join a
union.
If we were to apply the national mediation participation
standard to federal elections, I dare say that many of you
would not be here today. [Laughter.]
Chairman Andrews. Is that a good thing or a bad thing?
[Laughter.]
Mr. Hare. I was going to say, Mr. Chairman, that might get
some people pretty happy back in my district.
I yield back. Thank you.
Chairman Andrews. Thank you.
I guess it depends, huh?
The chair recognizes the gentleman from Georgia, Dr. Price,
for five minutes.
Dr. Price. I thank the chair, and I thank the witnesses for
coming today. I want to commend each of you for your testimony,
and I would just make an observation that the airline industry
obviously is facing remarkable challenges, and I don't think
any of us could envy the situation that the airlines are in.
I want to commend Delta Air Lines for their wonderful job
in remaining a strong and vital corporate citizen in our area.
There seems to be a bit of a damper on this discussion. I
want to just put a little positive spin on it, as Mr. Kochan
tried to do, I think, with one of his possible outcomes of all
of this isn't that the sky, no pun intended, is absolutely
falling. I would suggest that the positive points to this
merger could be that the goal of the merger would be to produce
a more viable and more competitive airline carrier, and that
the result of the merger should go forth with minimal, if any,
job losses, and that the resulting merger would maintain a
vibrant community and economic presence in Georgia, Minnesota
and wherever else the two airlines currently operate.
I would suggest, Mr. Chairman, that it may be appropriate
to have a hearing on southern hospitality and why wonderful
relations have occurred between Delta and their employees.
And wondered, Mr. Kight, if you might be interested on
commenting on the culture of the relationship between employer
and employee at Delta Air Lines.
Mr. Kight. Sure. As I stated, it is--we have a uniquely
cooperative relationship with our employees. It is one that is
built on the belief that employees are the key to customer
service and the key to providing great customer service to our
customers. So it is one that we--relationship that we cherish
very much, whether or not those employees are represented or
not.
Dr. Price. In light of that, would you comment on the steps
that Delta and the larger airline would take to ensure union
representation and fair union organizing elections if the
merger were allowed to go forward?
Mr. Kight. Sure. We are--again, I am not the representation
expert at the company, but what I can tell you is that we are
very, very much committed to employees being able to make a
fair choice and an educated choice about whether or not to be
represented. That is critical and something we very much
believe and something that Mr. Anderson has testified to many
times before.
Dr. Price. Would you comment--care to comment or expand on
the comments that you have made about the steps that Delta
would take to maximize existing job opportunities and new job
opportunities with a new airline?
Mr. Kight. Again, this is a merger of addition, not
subtraction. So what we believe very strongly is that the
ability for us to leverage the strength of the networks that
will be put together with these two carriers will allow us to
grow this airline, not to have to shrink it so much, as is
going on in so much of the industry.
So putting these two networks together gives us that
ability to leverage that strength, to grow the airline in the
future. That will produce more jobs, more career security going
forward and, frankly, as we have discussed, more security for
benefits because we will be a stronger airline, in general.
Dr. Price. I appreciate that.
I think it was you, Mr. Kight, although it may have been
Mr. Ford, who talked about the benefit to employees being
increased equity participation or continued equity
participation, increased profit sharing, no involuntarily job
furloughs and a fully funded PBGC contribution.
In light of that, would you comment on Delta's non-pilot
pension plans post-merger and Northwest's pension plans, if you
might?
And, Mr. Ford, if you would like to weigh in on that as
well, that would be great.
Mr. Kight. Sure. As I said, we fully intend to continue
funding our non-pilot plan. I know Northwest has been funding
theirs, and we fully intend to fund those plans once the merger
is consummated and we take them over.
The way we believe we are doing that, again, is through
building a stronger airline, an airline that has more
resources, better aspects for growth and therefore more
financial strength. And as I think Mr. Ford has said very
clearly, that is really the key to protecting pensions in the
long run is having a strong sponsor of those plans that can
continue to meet those obligations.
Dr. Price. I appreciate that.
I am about to run out of time, and I did want to get one
question in to Ms. Friend just to put on the record that I do
support the opportunity for employees to organize. I think it
is important for them to have a vote on that.
Do you--and I know that you do as well--do you believe that
that vote ought to be a secret ballot vote?
Ms. Friend. Well, it is a secret ballot vote.
Dr. Price. Good. I support a secret ballot vote as well. I
am pleased that you do.
Mr. Kochan. Mr. Chairman, could I make a comment in
response to Mr. Price's statement? I agree----
Chairman Andrews. Sure, a brief comment.
Mr. Kochan. Very brief. The upside potential is there, but
if past practice continues without some fundamental change in
the approach that the companies and the unions in this industry
have taken in the past, then you are going to see a
deterioration of the kind of culture, you are going to see an
increase in conflict, and you are going to see a deterioration
in the performance of this merged airline. It is going to take
a proactive effort to get the positive scenario to occur.
And that is the main point that I want to make here, that
unless there is some change in the way in which organizing has
been handled at Delta in the past, we are not going to see the
kind of positive outcomes that we all hope for.
Chairman Andrews. Okay. Thank you.
Dr. Price. And, Mr. Chair, just respond very briefly to
that. And I appreciate that comment. And I think that what we
have heard from the principals involved in this process is that
their desires of that change and of moving that process
forward. And I appreciate that.
Chairman Andrews. We might want to give Ms. Friend a chance
on the record here.
I believe that Ms. Friend's answer to your question, Dr.
Price, was ``It is a secret ballot.''
Do you favor a secret ballot in all circumstances or do you
favor card check registration, Ms. Friend?
Ms. Friend. Well, we favor card check recognition,
obviously. It is not, at this point, on the agenda for workers
covered by the Railway Labor Act, but the issue in these
elections, in this Delta election in particular, is not a
question of is it a card check or is it a secret ballot, it is
the question of denying people the opportunity to participate
at all in the democratic process.
Chairman Andrews. I understand. I just wanted to be sure
the record reflected her statement, not your characterization
of her statement.
Dr. Price. And the record is, I guess, that Ms. Friend
doesn't support a secret ballot.
Is that the record that you want to reflect?
Chairman Andrews. She is going to speak for herself. I just
want to give her the chance to do that. She doesn't need either
of us to characterize her remarks.
Dr. Price. Well, I am pleased to support a secret ballot,
Mr. Chairman.
Chairman Andrews. And I--you don't need me to characterize
your remarks either, but I would like to. [Laughter.]
Mr. Roach. Mr. Chairman, can I comment on that?
Mr. Chairman, can I comment on----
Chairman Andrews. Very briefly.
Mr. Roach. There is a process in the National Mediation
Board rules where during a merger authorization cards or cards
could be checked to certify a labor organization if all the
parties agree, if the carrier would agree. So there is that
process in place today.
Chairman Andrews. Thank you, Mr. Roach.
The gentleman from Iowa, Mr. Loebsack, is recognized for
five minutes.
Mr. Loebsack. Thank you, Mr. Chair.
Thanks to all the witnesses today.
Just a couple of preliminary comments. I want to thank
Delta and Northwest for their service. I live in Mount Vernon,
Iowa. It is about 20 minutes from Eastern Iowa Airport, and
while there are no direct flights to National Airport, there
are a number of carriers that I can choose from, and I often
fly on Delta, and I also fly on Northwest.
I am hoping that if this merger were to go through, that
service will be sustained, and my constituents, certainly, are
very concerned, obviously, that any kind of change along these
lines might result in fewer options, and I hope that is not the
case. I just want to state that for the record, obviously, for
my constituents in eastern and southeastern Iowa.
Also, I do want to just state we have got some anecdotal
evidence, it sounds like to me, as far as what employees from
Delta, for example, might think about some merger--a merger in
the future. And I have been doing my own kind of informal
polling when I have been on the plane with folks, and those who
are not at the moment organized on Delta would like to see them
become organized if this merger does happen. Those on Northwest
flights who are organized are very fearful that they are going
to lose those rights as a result of this merger.
So that is purely anecdotal. I am a former social
scientist. Don't take this as any kind of a scientific
sampling, but I have been talking to as many of these employees
as I possibly can in light of this proposed merger while I have
been flying back and forth.
I would, Mr. Chair, like to submit for the record a report
from--this is the Delta Air Lines Retirement Committee. It is
called, ``The Evolution of Non-Contract Delta Air Lines Retiree
Benefits,'' and Mr. Kochan has quoted one of their comments in
this report in which they state, ``For nearly two decades, the
early retirement benefit packages promised by Delta Air Lines
have been continually stripped away from the non-contract group
of retirees.''
I would like to submit this report for the record, if I
could, Mr. Chair.
Chairman Andrews. Without objection, so ordered.
Mr. Loebsack. Thank you.
Now, I do have a question--a couple of questions, or I
should say the same question for Mr. Kight and Mr. Ford. You
may or may not be aware that the NMB recently issued proposed
changes to the representation manual. One set of changes only
apply in the case of a merger of a union carrier and non-union
carrier. These changes appear to set a new standard for when
the NMB will extend the union certification to the newly merged
company.
To Mr. Kight, are you aware of any communications between
Delta and the NMB regarding these proposed changes before they
were issued on July 15, this year?
Mr. Kight. I am not aware of those. I am not the RLA expert
at Delta, and so I am not aware of any of that.
Mr. Loebsack. Thank you, and the same question to you, Mr.
Ford.
Mr. Ford. No, I am not, and, again, for the same reason. I
am an employee benefits lawyer.
Mr. Loebsack. Okay. Thank you.
Mr. Kight, you mentioned that--I can't recall the number of
employees of Delta who are covered by defined benefit plans.
What was that number again?
Mr. Kight. It is 91,000.
Mr. Loebsack. And how many total employees do you have?
Mr. Kight. Total employees, we have now about 50,000.
Mr. Loebsack. Okay.
Mr. Kight. That includes the retirees.
Mr. Loebsack. Okay. I am confused. So you have 91,000
retired employees who are covered?
Mr. Kight. No. You said the total covered, both active and
retired, are around 91,000 for the plan, but we have about
50,000 active employees.
Mr. Loebsack. And what percentage of those are covered by
defined benefit plans? Or how many of those?
Mr. Kight. All of the 50,000, other than pilots, who are
not, and there are about 6,000 pilots.
Mr. Loebsack. Okay. Thank you.
Ms. Friend, can you elaborate a little bit on--you know,
you mentioned the number of anti-union tactics employed by
Delta. Can you elaborate on that a little bit?
Ms. Friend. I can. I mean, and it begins when the Delta
flight attendants attempt to organize themselves into achieving
a union, and the law gives them access in non-work areas to
talk to their peers. And so the process of, sort of, pushing
back from management begins by literally pushing these flight
attendants into a corner and surrounding them by members of
management, sort of, intercepting any Delta flight attendant
who might want to come and talk to their peers about what it
would be like to have a union.
I mean, suddenly in these non-work areas, the places where
the flight attendants go to check in for their flights, appear
supervisors they have never seen before, popcorn machines, all
kinds of treats, any kind of distraction, and it just--it
escalates from there.
But the truly most distressing part was during the actual
voting period where each of these locations where flight
attendants have to report to work they are huge banners and
posters with the words that Mr. Hare has showed us, ``Give it a
rip, tear up your voting instructions.'' Voting is by Internet
or telephone, so you have the, ``Don't click, don't dial,''
because they know that every person who is persuaded not to
participate in the democratic voting process, which is a secret
ballot, counts as a ``no'' vote under the National Mediation
Board rules.
So it is astounding, really, that almost 40 percent of
these flight attendants managed to resist this constant
pressure for a period of--for weeks persuading them. And, you
know, and in the midst of it, you know, the announcement comes
that--and the count date was the end of May. So during the
voting process, an announcement was made by management that on
July the 1st all non-contract employees will get a three
percent raise. Of course, that raises the question, ``So if I
vote for the union, and now I am not a non-contract employee
anymore, do I get that raise?
So just these--you know, some subtle and a whole not so
subtle voter suppression.
Mr. Loebsack. Thank you.
Thanks, Mr. Chairman.
Chairman Andrews. The gentleman's time has expired. Thank
you.
The chair is pleased to recognize a member of the full
committee who is joining us for our subcommittee hearing today,
the gentleman from Utah, Mr. Bishop, for five minutes.
Mr. Bishop. Thank you, Mr. Chairman, for allowing me to sit
in on this particular panel. I appreciate that kindness.
I apologize for not hearing the direct testimony, but
thanks to our wonderful time management systems, there was
written testimony, which I had a chance to read last night. And
I was not here for all the questions, so I become redundant on
those, I apologize as well. But there are a couple that I would
like to make sure that I specifically understand as well.
And Mr. Price talked about where Delta is significant. Most
people think Mr. Matheson in Utah actually represents the
international airport. It is in my district, so the hub there
in Salt Lake City is of significant importance to the economy
of the state of Utah, so it is important to me.
Mr. Kight, if I could ask you a couple of questions, and I
am assuming it was part of your testimony, but I want to be
very clear on this. How significant is the increase in the cost
of fuel to Delta's survival, and is this merger with Delta
going to assist in that survival?
Mr. Kight. Obviously, the doubling of the price of fuel has
had a dramatic impact on Delta, it has had a dramatic impact on
Northwest and really all carriers, and so it isn't the very
significant event that we are all struggling to deal with.
We firmly believe that this merger will help us deal with
that issue. It will make the carrier stronger, it will--the
combined carrier will have approximately $7 billion in
liquidity. We will have the best balance sheet in the industry,
the lowest debt; we will have a much better balance and
portfolio of geographies that we fly----
Mr. Bishop. Even though both of you went through Chapter 11
reorganizations.
Mr. Kight. That is correct.
Mr. Bishop. Okay, then. How is this different than the US
Air hostile takeover, which I opposed?
Mr. Kight. Yes. The US Air deal itself was all about
reduction in service. It was significantly overlapping networks
that would have reduced services, reduced jobs, threatened the
security of the company, and it is for that reason that we
opposed it very strongly, and our employees oppose it very
strongly as well.
Mr. Bishop. Thank you. Ms. Friend, if I could ask a couple
of questions, because even though for a time I wasn't AFL-CIO,
I realized every election is different. Can you just describe
for me very quickly how the NMB counts votes in these types of
organizational elections?
Ms. Friend. Yes. They only count the votes that they
receive, and the ballot is not a yes-no ballot. The ballot has
the name of the organization that has demonstrated a sufficient
showing of interest, and thus is on the ballot, and it also has
a place for the employee to write in another ballot
organization. In other words, in our most recent vote, our name
was on the ballot. In the write-in, some flight attendants
wrote in, the Transport Workers Union, one flight attendant
even wrote in the Air Line Pilots Association, and those votes
are counted as a vote for a union.
So you need----
Mr. Bishop. But not specifically. They won't be divided as
to which union is the answer.
Ms. Friend. Well, they are. They are divided as to which
union, but, first--first, the employees have to meet the
arbitrator threshold that the Mediation Board has set. So, in
other words, they have to--they first count the number of valid
ballots they received, and if that number does not reach the
threshold of 50 percent plus one of the eligible units, then no
unit is--no union is certified. If it does reach that
threshold, then the union receiving the most votes is certified
as the union.
Mr. Bishop. What happens if a ballot is sent in that
requests no representation?
Ms. Friend. There is--it is not a yes-no ballot.
Mr. Bishop. So it would count as representation.
Ms. Friend. The way that employees vote no is they don't
vote.
Mr. Bishop. But if, for example, some employee were to send
in a ballot and said, ``I do not want representation,'' that
would be counted then as a yes if the ballot went in. That is
my assumption.
Ms. Friend. No. It would be counted as an invalid ballot.
Mr. Bishop. Okay.
Ms. Friend. It would be thrown out.
Mr. Bishop. I understand also that NMB in this recent
election enjoined some of the practices of the AFA. Can you
tell me what was prohibited?
Ms. Friend. Yes, I will tell you what was prohibited. We--
once the ballots were sent out--as I said, it is an Internet
voting or telephone voting--on our Delta flight attendant Web
site, we put a link so flight attendants could click on that
link and it would take them to the voting site, which is
managed by a third party, by a company called, Ballot Point.
They do Internet voting and telephone voting, and they do it
for the National Mediation Board. So we put a link to go there.
The Mediation Board--Delta management objected, and the
Mediation Board upheld their objection. Their objection was
that it would be possible for us to get behind that link and
find out how many people had actually clicked on that link, and
then we would know how many people had already voted, and then
we would--that would tell us whether or not we needed to step
up our get out the vote campaign.
Mr. Bishop. So what was the reaction for the union after
that enjoinment? What did you do to--I mean, what did you do
then?
Ms. Friend. We took it down.
Mr. Bishop. Okay.
Ms. Friend. Over our objections.
Mr. Bishop. I appreciate that. The final vote then, I
understand, was 39 percent for representation?
Ms. Friend. It was 39.2 percent.
Mr. Bishop. Okay. And, once again, anything that had
anything other than a vote for representation is counted as an
invalid vote; is that correct?
Ms. Friend. Right. They can either mark the ballot that
says, ``I wish representation by the Association of Flight
Attendants--TWA,'' or on the line below that they can write in,
``I wish representation by,'' and if it is a valid registered
union, it will count as a valid vote toward wanting union
representation. If it says, ``No one,'' or if it says, ``The
Delta Employee Involvement Group,'' the National Mediation
Board does not count it. They invalidate that ballot. That is
their rule.
Mr. Bishop. Okay.
Chairman Andrews. Gentleman's time----
Mr. Bishop. No, I thank you for explaining that process to
me.
Thank you very much for your kindness in allowing me to ask
questions.
Chairman Andrews. You are very welcome.
The chair is pleased to recognize the gentlelady from New
York, Ms. Clarke, for five minutes.
Ms. Clarke. Thank you very much, Mr. Chairman, ranking
member.
This is a very important hearing. I think it speaks to
where we are going as a nation with regard to how we are going
to revolutionize the way we treat workers. And I have a couple
of questions that--because I represent Brooklyn, New York in
the 11th congressional district, and I travel through LaGuardia
Airport where Northwest and Delta share the same terminal.
Though LaGuardia is not in my district, workers employed by
both airlines reside in my district.
So here is what I need to know: What kind of impact will
this merger have on the employees of Delta and Northwest who
work at LaGuardia and live in my district? What will be their
fate?
I would like to direct this question to Mr. Kight and to
Mr. Kochan. I want to know what proactive efforts should be
taken to reassure that these jobs are retained in the merger.
Mr. Kight. Thank you. We have made it very clear that there
will be no frontline employee furloughs as a result of this
merger. The employees that you speak of that work at LaGuardia
would be considered frontline employees, and so we have made it
very clear, as a commitment from the very beginning, that there
will be no job furloughs in that group as a result of the
merger.
In terms of other impacts for those employees, again, what
we have committed to are things like a significant equity stake
in the company for all employees, almost 10 percent of the
company, in the form of unrestricted stock that we will give to
them upon closing, moving them to industry standard pay and
benefits over time, fully funding the pension plans that they
are--the frozen pension plans that they are members of,
continued commitment toward competitive health care and other
benefits.
Mr. Kochan. Thank you. I think the most important thing
that will determine the impact on the employees at LaGuardia
and elsewhere is whether the organization will be financially
sound, successful and able to provide the service customers
expect.
I strongly believe that unless the kinds of issues that we
have been talking about here, unless the issues around how the
representation process will be handled, around how the cultures
of these two very different organizations will be integrated
and be addressed, how the process for negotiating new
agreements and resolving differences and adjusting compensation
in an equitable way relative to the performance of the
organization and to other groups in the organization and the
industry are addressed, then I--if those issues are not
addressed, these employees will be at risk.
If they are addressed effectively, I think it will improve
their security and their prospects for their long-term welfare.
Ms. Clarke. Mr. Kight, I want to go back to the reassurance
that has been so touted. I know Mr. Anderson spoke and
testified before the House Judiciary Committee where he
reiterated this reassurance of frontline people will not--that
there will not be any involuntarily furloughs as a consequence
of the merger. How can Mr. Anderson say with certainty that
there will be no involuntarily furloughs, and what will Delta
do if the Department of Justice requires it to divest in some
of its hubs as a prerequisite to the merger approval? If this
is the case, will Delta stand by its statement of having no
involuntarily furloughs?
Mr. Kight. We believe strongly in that commitment,
primarily because this is a merger of addition and not
subtraction. The root networks of these two carriers are very
complementary, they don't overlap, and we believe that that is
a very key point in this merger.
Again, what we have said is there won't be any furloughs of
frontline employees as a result of this merger.
Ms. Clarke. And you all really stand by this,
notwithstanding what could happen if you have to divest in some
of your hubs?
Mr. Kight. I am not familiar with the potential for that,
and so I don't know the answer, but we would be happy to follow
up on that if I can.
Ms. Clarke. The lighting system seems to have gone blank
here, so I am not certain where my time is, Mr. Chairman, but I
just want to close----
Chairman Andrews. Just a few more seconds, yes.
Ms. Clarke. I want to close by saying that I hope that you
have heard what Mr. Kochan has said. Ultimately, at the end of
the day, representation of these workers is just as important
as all of the corporate restructuring that you are about to do.
Without proper representation of these workers, without their
ability to negotiate and be part of the remaking of this
particular airline, and I believe overall the industry, I don't
see how you create the win-win here. And, ultimately, in the
21st century, that is the expectation, that we are looking at
win-win, not just imposing what you believe will be a
successful airline but getting the buy-in of all who are
employed to be a part of that.
Thank you very much, Mr. Chairman.
Chairman Andrews. Thank the gentlelady, and pleased to
recognize the gentleman from New Jersey, Mr. Holt, for five
minutes.
Mr. Holt. I thank the chair, and I thank the witnesses for
good testimony.
Mr. Kochan recommends that pre-merger discussions should
take place to resolve labor issues before any merger.
Mr. Roach and Ms. Friend, have you requested such
discussions from the airlines, and have they or are they--have
they taken place or are they taking place?
Mr. Roach first.
Mr. Roach. When the merger was announced, we sent letters
to Mr. Anderson and Mr. Steenland and indicated that we thought
it was a good idea that they have discussions with us about the
potential merger and the effects, and we have not heard from
either one of them.
Mr. Holt. Ms. Friend?
Mr. Roach. They haven't discussed anything with us.
Ms. Friend. We obviously reached out as well as soon as the
merger was announced. Sadly, we have heard from them, and what
we heard from Mr. Steenland was, ``We have nothing to talk to
you about, because it is the intention of the management of new
Delta that when the merger is completed there will be no union
for the flight attendants. So there is no point in us
meeting.'' And we have made repeated requests for meetings to
discuss the progress of the merger and how it affects us, and
the answer is still the same, ``There is no seat at the table
for you.''
Mr. Holt. If there is time in my question period, I will
ask Mr. Kight and Mr. Ford if that is because the companies do
not agree with Mr. Kochan that this is advisable to have these
pre-merger discussions.
But let me ask Mr. Kochan, there has been a lot of talk
about fuel prices, Chapter 11, difficulties in the industry.
Are employees being collectively organized under unions an
optional luxury that should be considered only in times of
prosperity?
Mr. Kochan. Well, it is the policy of this country to allow
employees to have a voice of their own choosing at our
workplaces. That is not a luxury, and it isn't something that
is only appropriate in good times. It is even more important
during stressful times, during difficult times. The evidence is
very clear over a long period of time, in this industry and
elsewhere, that represented employees fair much better than
non-represented employees during difficult times, during times
of recess or financial stress, because you can work out
solutions that, as Ms. Clarke indicated, are potentially win-
win. And we have seen this in isolated examples in the airline
industry.
We point specifically to Continental Airlines, which had,
as we all know, a horrendous time in the 1980s--in bankruptcy
twice--and in 1994 a new management team at Continental took
over that said, ``We are going to recognize the right of
employees to be represented, and, in fact, we are going to work
with them cooperatively to try to build a high quality labor-
management relationship.'' It has been very successful.
Mr. Holt. And you base your observations here on historical
study.
Mr. Kochan. On historical study. We have studied this
industry for--intensively for the last eight years.
Mr. Holt. Thank you.
Mr. Kochan. It happens to be an industry I have studied
more informally before that, but we did specific historical
case studies, in-depth case studies at Continental and at
several other airlines to document how they brought themselves
out of the financial stress of bankruptcy, rebuilt the airline,
rebuilt high levels of customer service, became one of the 100
best companies to work for in America and recognized its
unions, reached agreements at half of the time it takes to----
Mr. Holt. Thank you very much. That is well put.
Mr. Kochan [continuing]. In the industry.
Mr. Holt. Let me turn to Mr. Kight and Mr. Ford. I have a
letter from the Pension Benefit Guaranty Corporation to the
CEOs--addressed to the CEOs of Delta and Northwest, dated four
months ago, expressing the PBGC's interest that the merger
talks consider the pension plans, because the Pension Benefit
Guaranty Corporation has doubt that there would be sufficient
funding. In fact, the merged airline would have pension
obligations totaling something like $16 billion for 160,000
retired and active employees. Already, Delta has terminated its
pilot pension plan, which had almost $5 billion in liabilities.
To what extent are the merger discussions considering this
and how would a merged carrier ensure that the pension funding
obligations would be met going forward?
Let me start with Mr. Kight.
And, Mr. Chairman, may I submit for the record this letter
to the--from the PBGC to the CEOs?
Chairman Andrews. Without objection.
[The information follows:]
------
------
Mr. Kight. I remember that letter well and helped draft our
response to it. We do believe very much that this merger will
help strengthen our ability to meet our obligations to those
pension plans that we have at Delta and the plans that we will
assume responsibility for from Northwest.
Mr. Holt. Do you have a reply to that letter that you would
care to submit for the record?
Mr. Kight. Certainly. I don't have it with me, but I will
have to get you a copy.
Mr. Holt. Thank you.
Mr. Kight. So we believe very strongly that this merger
will help our--enhance our ability to meet those obligations
going forward. We--as Mr. Ford has testified eloquently, what
is important here is a strong sponsor of these benefit plans,
and we believe that with the challenges that our standalone
companies are facing in this industry, combining together makes
us stronger makes us more financially viable and gives us a
better footprint from which to fund these benefit obligations
going forward.
Mr. Holt. Thank you. My time has expired. Mr. Ford's
response will be only at the chairman's discretion.
I thank the chairman.
Chairman Andrews. We will give Mr. Ford a moment to
respond, of course.
Mr. Ford. I think that letter is an indication of the
systems working. The PBGC is being vigilant, they are
scrutinizing the transaction, and they note in that letter that
they have already received information. Our response makes it
clear they will continue to have information to scrutinize the
transaction, and we welcome that scrutiny. We have cooperated
with it, and we have every confidence that the agency will be
comfortable with the transaction.
Chairman Andrews. We thank the witnesses for their
comments.
I would ask if the ranking member has any concluding
remarks?
Mr. Kline. I would just like to also thank all the
witnesses for coming. As I mentioned earlier, I know some of
you traveled a long way. This is a panel of experts, and we are
glad to have such a panel.
Unfortunately, as I mentioned in my opening comments, much
of what we have talked about today doesn't come under the
jurisdiction or purview of this committee. It is interesting to
us, however, in particular discussion of the pensions for which
this committee and the full committee have worked an awful lot
in the last few years.
So thanks again for your testimony and for the good, crisp,
clear answers to the questions.
Chairman Andrews. Thank you.
I hear the--I would also like to thank the witnesses for
their participation today, and I look at this discussion
through two perspectives. One is a deep and abiding concern,
irrespective of jurisdiction, that people be treated fairly,
and that most especially goes to those relying upon pension
plans, who have built their lives around these assumptions that
their lives are not shattered by change of circumstances beyond
their control, and, second, that those who are employees and
shareholders and others affiliated with an airline are treated
fairly in the conduct of the business.
I walk away from this hearing with two lessons learned. The
first is, I believe there are profound pension issues involved
here. I think that there is profound interest from the point of
view of the PBGC, which is expressed in the letter that Mr.
Holt made reference to, and we hope that all the parties
involved will conduct themselves in accordance with those
concerns.
And, second, I think that one point of consensus is that a
process that is inclusive, that is consensual, that involves
all voices in a rational way will tend to lead to a stronger
outcome in terms of employment, in terms of pension stability,
and I would hope that the Justice Department would heed the
voices that we have heard today and conduct its review of this
merger with those considerations in mind.
I guess, finally, to add a third point, I think there is
some basis for us to consider the proper legislative response,
not simply to this merger before us but to the generic question
of whether the criteria which the Justice Department must take
into consideration are adequately robust. And that goes beyond
the jurisdiction of this committee to some extent, but I am
sure that these kinds of mergers, not just in the airline
industry, are going to become the norm.
And I think it is very important that all concerns are
taken into account, not simply as a matter of discretion, so we
are not dependent upon the ideology of the given attorney
general, but as a matter of course so that these legitimate
concerns can be raised.
As previously ordered, members will have 14 days to submit
additional materials for the hearing record. Any member who
wishes to submit follow-up questions in writing for the
witnesses should coordinate with the majority staff within 14
days.
Again, I thank the witnesses for their excellent
participation, and without objection, the hearing is adjourned.
[The statement of the Aircraft Mechanics Fraternal
Association, submitted by Mr. Andrews follows:]
Prepared Statement of the Aircraft Mechanics Fraternal Association
Safety in the air begins with quality maintenance on the ground
I am Stephen MacFarlane, National Director of the Aircraft
Mechanics Fraternal Association (AMFA), a craft union representing
nearly 5,000 aviation mechanics and related at Alaska, Southwest,
Northwest (NWA), Mesaba, and Horizon. AMFA represents over 900
mechanics at NWA, and over 200 at Mesaba one of NWA's regional
subsidiaries. I am writing to share my organization's concerns
regarding mergers and consolidation within the airline industry,
specifically the proposed deal between Delta and Northwest. Having
worked in the airline industry for twentyfive years and lived through
two mergers, Hughes Airwest/Republic and Republic/Northwest, I can
attest first hand to the harm that can befall workers caught up in
airline mergers.
AMFA understands that consolidation within the industry is likely,
and we are not necessarily opposed to consolidation per se, however,
AMFA believes there are facts surrounding the DeltaNWA pairing that
need to be addressed. These issues include, but are not limited to:
Billions of dollars in outstanding pension obligations
Current and potential future union representation at the
combined carrier
The potential wave of mergers stemming from the approval
of the DeltaNWA deal
Promises made by management teams to garner political
favor for deals that turn out to cause great harm, such as pledges to
keep all hubs, employees, and small community air service.
Having endured devastating job losses and drastic reductions in pay
and benefits coerced from airline workers throughout the industry over
the past five years, we can't help but flinch at the prospect of
another corporate tactic that has the potential of delivering yet
another blow to the livelihoods of airline workers. Prior to the
attacks of 9/11, AMFA represented nearly 10,000 mechanics and related
at NWA. Immediately after the attacks, tens of thousands of frontline
airline employees at numerous carriers were laid off, including about
half of AMFA's NWA population. Today, the number stands at 910. AMFA
members in Minnesota numbered over 6,000 during the late 90's alone.
These workers earned above average wages, owned homes, and contributed
significantly to the economy of Minnesota and the nation as a whole.
There are now only 615 AMFA NWA mechanics left at MinneapolisSaint Paul
(MSP) and 300 left in Detroit (DTW). Most of these mechanics reside in
other states, spending their earnings outside of Minnesota and
Michigan.
Former mechanics have, in many cases, moved on to lowerpaying jobs
and turned to refinancing homes or other forms of debt to sustain their
families, and in turn degrading the economic quality of the region as a
whole. This is not a sob story or anything of the sort. Rather, this
scenario shows that for all the numbers thrown around about how vital
the airlines are to our economy both micro and macro the benefits must
add up to more than simply the ability of a select few residents with
proximity to a certain airport to be able to fly to Mexico City via
Salt Lake City. With no economic base to support leisure travel and the
forecasted ``1520% rise in ticket prices'' \i\ needed to offset soaring
fuel prices, the current crisis in the industry will expand to the
point where a majority of the American middle class will find air
travel costprohibitive.
---------------------------------------------------------------------------
\i\ Delta CEO Richard Anderson quoted by Associated Press. USA
Today April 22, 2008
---------------------------------------------------------------------------
The government has provided great assistance to the airline
industry during difficult times in the form of the ATSB, whereby $5
billion in taxpayer dollars was given to the industry without any
guidance as to how the airlines were to spend the money. Another $10
billion was made available for loans to assist the ailing industry.
While this was laudable, no help was forthcoming to the tens of
thousands of workers who lost their jobs.
Additionally, federal bankruptcy laws, which were never intended to
be used as a strategic tool for competitive purposes, were turned
against workers as federal judges aided executive management teams in
extracting severe, painful, and permanent concessions from American
airline workers. Pensions were defaulted, work rules changed,
workforces reduced by thousands, wages slashed, and so on. We
acknowledge the value and benefit of having a viable airline industry
that provides great mobility and swift commerce for our nation;
however, this goal must not come at the cost of a stable and productive
middle class that contributes to the economic vibrance and tax base of
the American economy.
Now, as we enter the era of Open Skies and megacarriers, the need
for scrutiny grows. NWA and Delta claim that employees will be given a
4% stake in the merged company. Employees at United Airlines can attest
to the perks of ESOP programs, where $250,000 in stock yielded a $1200
payout. This merger does nothing to allay concerns of future bankruptcy
filings, and future financial distress. In fact, the cost of merging
has been reported to be somewhere near $1 billion. Given the combined
$10 billion in losses by NWA and Delta in the first quarter of 2008, it
seems the carriers need all the money they can get. Even without
``onetime'' costs of $6 billion for Delta and $4 Billion for NWA, the
two have reported deep losses, largely due to $124/bbl oil, for the
second quarter, with NWA $377 million in the red and Delta exceeding an
astounding $1 billion in losses. Oil and refined fuel commodity prices
will not decrease with the formation of the largest airline in the
world.
With this merger, the company will have a fleet of over 800
aircraft, with the only overlap in aircraft type being the Boeing
757200 (Delta 131; NWA 16).\ii\ This means the combined carrier will
have 19 different and unique aircraft, and a fleet that will be one of
the oldest in the industry. The companies have said that the carrier
will be able to right size aircraft to specific routes, and park older
airplanes, but both airlines have stated their individual intentions to
do this in the next year anyway, as well announcing cuts in mainline
capacity. The costs of the merger procedure fly in the face of the
actions the companies are taking independently.
---------------------------------------------------------------------------
\ii\ Aviation Week & Space Technology Aerospace Sourcebook 2008.
Pgs 364 & 372 the likely wave of mergers afterward, change anything? It
seems more likely a continuation down the same potholeladen path.
---------------------------------------------------------------------------
Just this past April, Delta, NWA, Air FranceKLM, CSA Czech Airlines
and Alitalia were granted antitrust immunity for their international
codeshare alliance operations as part of the SkyTeam Alliance. This,
combined with Stage I of the USEU Open Skies Agreement (OSA), appears
to be leading to the creation of global megacarriers, and with it, the
gradual erosion of the traditional airline employee. If not for US
ownership and actual control restrictions, it is highly likely that
transAtlantic consolidation would have been realized already. These
guarantees are under siege as well, as Stage I of the OSA stipulates
that if the US does not liberalize its ownership requirements for a
Stage II agreement, Stage I will be negated and withdrawn.
While many employees would likely welcome being part of the world's
largest air carrier, that endorsement must come with tangible benefits.
Since 2001, airlines have laid off over 150,000 employees, defaulted or
demurred over $20 billion in pension obligations, and lost more than
$29 billion. These facts show that something fundamental must change.
But, how does this merger, and AMFA is not against Delta and Northwest
merging. However, we are hard pressed to see how this betters the
industry and its employees. At the minimum, Delta's mechanics must be
given a fair chance to vote on representation. AMFA has received a
significant number of NMB cards, and stands to vie for representation
in the event that this merger is approved. If the workers of the merged
carrier choose no representation through a vote, then so be it. On the
other hand, we feel that in the current environment of high fuel prices
and a stagnating economy, the mechanics at a combined DeltaNWA will
find that as atwill employees they will have little recourse against
the slashandburn management tactics that will be utilized by DeltaNWA
management to handle the rapidly changing commercial aviation sector.
We hope that all the promises made by Mr. Steenland and Mr.
Anderson come to fruition and this merger is a positive for everyone
involved. Sadly, though, rank and file airline employees have been down
this road before and historically it has ended with thousands of
layoffs and a few golden parachutes at the top.
______
[Questions for the record and subsequent responses follow:]
U.S. Congress,
Washington, DC, August 4, 2008.
Rob Kight, Vice President--Compensation, Benefits and Services,
Delta Air Lines, Inc., 1060 Delta Boulevard, Atlanta, GA.
Gary Ford, Attorney,
Groom Law Group, Pennsylvania Avenue, NW, Washington, DC.
Dear Messrs. Kight and Ford: Thank you for testifying at the
Wednesday, July 30, 2008 Committee on Education and Labor Subcommittee
on Health, Employment, Labor, and Pensions Hearing on The Proposed
Delta/Northwest Merger: The Impact on Workers.''
Committee Members had additional questions for which they would
like written responses from you for the hearing record.
Congressman Hare asks the following question:
1. If the merger is approved, will you commit to allowing a fair
and honest organizing campaign?
2. Why hasn't Delta agreed to meet with the IAM or AFA to discuss
labor issues relevant in the potential merger? Will Delta commit to
holding such a discussion before any merger is finalized?
Congressman Holt asks the following questions:
1. Have you responded to the Pension Benefit Guaranty Agency's
(PBGC) letter to you dated February 28, 2008? If so, please provide us
the committee with a copy. If not, please provide the committee with
your reason for not responding.
2. Do you intend to honor the PBGC's request to meet with them to
discuss protecting the retirement benefits of the over 160,000
employees and retirees in the four defined benefit (DB) plans your
merged company will manage? If so, when do you plan to meet with them?
Please send your written response to the Subcommittee staff at by
COB on Wednesday, August 13, 2008--the date on which the hearing record
will close. If you have any questions, please contact us at 202-225-
3725. Once again, we greatly appreciate your testimony at this hearing.
Sincerely,
George Miller,
Chairman.
______
[The statement of Richard H. Anderson, submitted by Ms.
Clarke follows:]
Prepared Statement of Richard H. Anderson, CEO Delta Air Lines, Inc.
Mr. Chairman and members of the Task Force, I want to thank you for
providing me with the opportunity to address the Task Force about a
topic that is critical to the future of every employee of Delta Air
Lines, Inc. and Northwest Airlines. Last week we announced the merger
of Delta and Northwest; a transaction that will create America's
premiere global airline. This transaction comes at a unique and
important time in the history of the airline industry and our two
companies. The world is changing rapidly; business is conducted across
all parts of the globe and people all around the world have
unprecedented freedom and opportunity to travel abroad. The question
facing the domestic airline industry is whether we will have companies
with the global network and financial stability to compete in this new
world against foreign carriers. Make no mistake about it; we face
formidable competitors from overseas. Today foreign flag carriers carry
more passengers to and from the U.S. and Europe and Asia than U.S. flag
carriers. They are frequently funded by their government and benefit
from regulatory policies that promote consolidation into a handful of
strong competitors. The Open Skies agreements that have gone into
effect recently offer domestic carriers excellent opportunities and
daunting challenges as transatlantic competition will increase
dramatically. The current order book for wide body Boeing and Airbus
aircraft shows that U.S. carriers make up only about 5% of the buyers.
We do not come here today looking for financial support, but we are
looking for an opportunity to build a more financially stable U.S.
airline with the global presence to compete with foreign carriers.
Our ability to remain strong financially and to compete
internationally is severely impacted by the unprecedented rise in the
price of oil. Continued prices of $110-$115 per barrel of oil will
result in bankruptcy for some carriers and rob even the most
financially sound carriers of profitability. In the last few weeks
alone we have seen five carriers go into bankruptcy directly as a
result of fuel prices, with four of them shutting down completely.
Airlines are reporting first quarter results and the industry will
likely report a loss for the quarter compared to profits for the first
quarter of 2007, with the swing almost exclusively the result of
increased fuel costs. We have seen the impact of bankruptcies on
airline employees and customers. Since 2001, U.S. network carriers have
shed more than 150,000 jobs and lost more than $29 billion. The
management of Delta and Northwest believe that this merger will create
a financially stronger airline, with a broad and diversified global
route network that will help it weather the impact of fuel prices and
the volatility of the domestic and world economies.
The Delta-Northwest combination will be a strong, U.S. based global
competitor
The combination of Delta and Northwest will create a stronger
company with route systems that complement each other and will provide
an opportunity to offer travelers a global network that neither airline
independently could offer. Northwest for decades has been America's
premiere carrier to Asia; in fact it is the only U.S. carrier with a
hub in Japan that provides a convenient point to connect to the most
important destinations in Asia. As a result of restrictions in bi-
lateral agreements between the U.S. and Japan, there is little chance
that Delta would ever be able to offer comparable service. Conversely,
Delta has invested substantially in building the leading service to
Europe, the Middle East and Africa from the U.S., as well as a strong
presence in Latin America. It is virtually impossible for Northwest to
devote the capital necessary to acquire the planes to build such a
franchise. As I indicated, the recent Open Skies agreements will permit
any U.S. or European Union carrier to fly between the U.S. and the 27
EU member states. Already, British Airways, Virgin Atlantic and Ryanair
have indicated that they will add or start new service between the U.S.
and Europe, and Lufthansa is a growing presence in the U.S. The
combined Delta/Northwest will generate approximately $ 1 billion a year
in synergies and will have about $ 7 billion of liquidity together with
the global route network that will allow us to compete in this new
environment.
The merger has been structured to provide stability and benefits for
employees
Delta has a uniquely cooperative relationship with its employees,
and in planning this merger the impact on employees was uppermost in
our minds. I have worked at many companies, in many different jobs, in
both the public and private sectors and I have never seen an employer
that respects and cares about its employees more than Delta Air Lines.
Delta historically has had a culture that always tries to do what is
best for its people. That is particularly important in view of the
immense challenges that Delta and the rest of the airline industry have
faced in recent years. Given these challenges, I believe it is even
more important that we work collaboratively with all of our people so
that we can fight and overcome them together. As we are beginning to
see, companies and employees that fail to work together are at greater
risk of failure. We believe that it is important that any transaction
we undertake will benefit the people of both companies, together with
our customers and other stakeholders. We believe that if we take care
of our people, they will take care of our customers, and we will all
benefit.
Here are just some examples of how this merger will benefit our
people:
We will set aside sufficient equity so that all employees can have
an unprecedented equity stake in the merged company.
We will move all employees, over time, up to industry standard pay
and benefits.
We will honor our commitment to all U.S.-based, frontline employees
to provide a process for the integration of seniority in a fair and
equitable manner.
We will maintain the existing pension plans of both companies, both
for current employees and for those already retired.
We will maintain our top tier profit-sharing plan and operational
rewards program.
We have assured our frontline people that there will not be any
involuntary furloughs as a consequence of the merger.
And particularly important in view of the impact on our industry of
record fuel prices and economic uncertainty, we will strengthen our
airline financially and provide opportunities for our people to benefit
from our planned growth and future success.
With respect to whether there will be union representation in the
various crafts or classes of employees after the merger of Delta and
Northwest, we have pledged to respect our employees' preferences on
that issue. The Railway Labor Act, as administered by the National
Mediation Board, provides a time-tested process for determining
employee choices regarding representation following an airline merger.
We of course will respect that process and those choices. In the
meantime, we have provided a written commitment to honor the existing
Northwest collective bargaining agreements consistent with applicable
law, until any post-merger representation issues are resolved.
Regarding seniority protection for the frontline employees of Delta
and Northwest, Delta took the initiative last year when our Board of
Directors adopted a policy to provide a process for fair and equitable
seniority integration for employees of both companies in any merger. We
pledged to use the seniority integration provisions from the former
Civil Aeronautics Board's ruling in the Allegheny-Mohawk merger. Delta
and many other carriers have used the Allegheny-Mohawk provisions in
prior mergers, and they are also provided for in many collective
bargaining agreements in the industry. Last December Congress passed
legislation that required the use of the Allegheny-Mohawk seniority
integration provisions in airline mergers. Delta successfully fought to
assure that the law as passed protected all employees, whether union or
non-union. We carried these principles through our negotiations with
Northwest and have provisions in our merger agreement that provide for
seniority protection.
Small communities will benefit from the merger
I would like to address another issue that I know is very important
to this Committee and our customers: service to small communities.
Both Delta and Northwest are very proud of their long history of
serving small communities. Northwest has often been the only way for
people in small towns in the upper mid-west to connect with the rest of
the country and the world. Similarly, Delta was founded in a small
southern city and for years its focus was serving small southern
communities. We know and understand the importance of air service to
the economic health of these communities. The phenomenal growth of
Atlanta and the southeast in general is directly related to the
superior service offered from Hartsfield Jackson Airport in Atlanta,
largely by Delta. We intend to continue with these traditions and to
remain the airline providing the most service to small communities from
strategically located hubs in Atlanta, Minneapolis, Detroit, New York,
Memphis, Cincinnati and Salt Lake City. This is not just customer
service, it is good business--we have committed publicly that we will
not close any hub as a result of this merger and to keep these hubs
profitable we need the traffic from small communities around the
country. A robust hub system is critical to the service desired by
small communities. It is the most effective model to serve these
communities as it allows us to use smaller aircraft to bring passengers
from many small communities to the hub and offer broad connecting
opportunities for these passengers. The combined Delta/Northwest will
serve over 140 small communities, nearly twice the number served by our
next closest competitor. The merged airline will offer new service to
nearly 3,000 domestic origin and destination markets and over 6,000 new
international markets, greatly expanding the ability of customers from
small communities to reach every part of the country and the world on
one airline.
As the economies of the world become linked more closely, we
recognize the importance of air travel to the ability of small
communities to compete and thrive in a world economy. This merger will
open up a new range of options for our customers in small communities
to put them in closer contact with the rest of the world. For example,
the combined Delta/Northwest will provide customers in 48 small
communities served by Northwest better access to 83 additional
international destinations served by Delta today, while passengers in
51 small communities served by Delta will gain greater access to 20
Northwest international destinations. The combined airline will offer
passengers over 390 global destinations on a single airline up from 250
on Northwest alone and 327 on Delta alone. Customers in small towns in
the south will be able to fly to Japan and much of Asia with one easy
connection on the same airline. That is not the case today. Similarly,
customers in the upper mid-west will have many more options to more
destinations in Europe and Latin American than they do today. Since
Delta and Northwest have focused their attention on different regions,
there are few overlap routes and customers will gain the benefits of a
larger combined network without any material reduction in services.
However, providing service to any city, whether small or large, must
make economic sense and the high cost of fuel for either Delta or
Northwest is far more likely to result in a reduction or elimination of
service than this merger.
The unprecedented rise in the price of fuel has created serious risks
for the airline industry
No discussion about the current state of the airline industry would
be complete without mentioning the devastating impact of the
unprecedented rise in the price of oil. Every day we read that the
price of a barrel of oil has hit new records. Over the last five years
we have experienced a 28% annualized increase in oil prices and in the
last 12 months alone, the price of a barrel has nearly doubled. Most
analysts do not foresee the price of a barrel of oil going below $100
any time in the near future. What is less widely publicized is the
equally dramatic rise in the cost of jet fuel extracted from oil. Since
2001, the cost of a gallon of jet fuel has increased over 500% and
nearly doubled since December of 2006.
The airline industry is somewhat unique. When the price of oil
rises and you go to fill your car up with gasoline, you pay more at the
pump; there is little choice. In the airline industry, we are lucky if
we can recover through fare increases even 50% of fuel price increases.
The costs have to be made up somewhere else. Despite becoming more and
more fuel efficient and obtaining more and more productivity from our
employees and operations--Delta and Northwest have two of the lowest
cost structures of the mainline carriers--the impact is dramatic. In
2003 fuel costs consumed 17 cents of every dollar of passenger revenue
we received; in 2008 that number will be 43 cents. Every $1 increase in
the price of a barrel of oil costs Delta about $60 million. The
increase from $110 to $115 per barrel in the last couple of weeks alone
will cost Delta over $300 million. As a result, there are fewer dollars
left to improve passenger amenities, acquire new aircraft and provide
better compensation and benefits to employees.
The employees in this industry have sacrificed time and time again.
The dramatic rise in fuel costs has resulted in much of the cost
savings our employees have generated through productivity and benefit
losses being used to pay for fuel rather than to improve the product.
In effect, it has eroded most of the sacrifices they have made to make
their company viable and sustainable in the future. Merging Delta and
Northwest will create a much more financially stable company with
approximately $7 billion in liquidity and $1 billion in annual
synergies. The combined airline will be able to withstand an 80%
greater increase in fuel price than either airline standing alone, and
still maintain profitability. This financial strength and flexibility,
much greater than either airline standing alone, will provide
additional resources to help weather this unprecedented fuel cost
environment and a softening domestic market.
This merger will be beneficial to customers
I have already touched on some of the key benefits our customers
can expect such as significantly expanding the number of domestic and
foreign locations that will be available from the merged airline. There
will be other benefits such as a common frequent flyer program that
will provide more opportunity to earn miles, more schedule options, and
more efficient routes for connecting passengers as we optimize the
combined hub structure. Of equal importance, the financial stability
and flexibility the combined carrier will have will allow for re-
investment in our product such as planes, in-flight services and
reservation systems. For example, we have publicly declared our
intention to exercise options to purchase up to 20 new wide body jets
between 2010 and 2013 to upgrade our fleet for international flying.
We are mindful of the difficulties in combining the complex
operations of two airlines and that other airline mergers have
encountered problems that have inconvenienced customers. Delta and
Northwest are committed to making this merger seamless and trouble free
to our passengers. Both Delta and Northwest are members of the SkyTeam
alliance and are used to working cooperatively. Our frequent flyer
programs, customer lounges and IT systems have been partially
integrated already. In addition, we will be able to build on the
decades long partnership between Northwest and KLM (now a part of Air
France) and the long standing relationship between Delta and Air
France. All of these factors will help smooth the integration process
for our customers.
The merger does not harm competition
Doug Steenland's written submission will deal extensively with the
pro-competitive impact of this proposed merger and I will not repeat
all of those points. I will simply say that these two airlines have
complementary networks; Delta's domestic focus is in the east and
mountain west while Northwest focuses on the upper mid-west. There are
only twelve domestic nonstop overlapping markets. Even these nonstop
overlaps do not cause competitive problems, as Doug's statement
indicates. Similarly, on connecting route overlaps, potential
competitive effects are mitigated by the presence of low cost carriers,
the relatively small market shares of Delta and Northwest, alternative
airports and the likelihood that legacy carriers will expand into these
markets. In addition, the transaction will generate significant
efficiencies through such factors as more efficient matching of
aircraft to routes that will enable the combined carrier to be
financially stable and to offer a better product to customers, such as
a broad global network and enhanced airport presence.
Conclusion
In closing, I would like to acknowledge the support we have
received from Delta people throughout the company. It has been a little
more than a week since we announced the merger. We have been traveling
our system from Atlanta to Cincinnati to New York to Salt Lake City and
I am happy to say that Delta people are very excited about what this
means to them. I believe that Doug will report the same about
Northwest's employees.
Last week we had a meeting in Atlanta attended by almost 2000
employees. Some of our people have traveled here today to show their
support. Our people appreciate the fact that we are taking proactive
steps to provide a more secure, financially stronger company in these
times of increased foreign competition, record-setting fuel prices and
a weakening economy. They don't want us standing still. We look forward
to welcoming Northwest employees to join with their Delta counterparts
to create and enjoy the benefits of being part of America's premier
global airline.
______
[Whereupon, at 12:16 p.m., the subcommittee was adjourned.]