Shareholders give go-ahead to United-Continental merger - Next, tougher act is winning over unions, employees

Shareholders give go-ahead to United-Continental merger - Next, tougher act is winning over unions, employees
By Julie Johnsson
Copyright © 2010, Chicago Tribune
12:08 a.m. CDT, September 18, 2010
http://www.chicagotribune.com/business/ct-biz-0918-united-vote-20100917,0,139081.story


Shareholders voted overwhelmingly Friday to combine Continental and United into the world's largest airline.

Legally the merger closes Oct. 1, when Continental CEO Jeff Smisek strides into United's stylish downtown Chicago headquarters as chief executive only five months after the deal was unveiled.

The speed and ease with which Smisek and Glenn Tilton, his United counterpart, gained approval from U.S. and European antitrust regulators surprised some observers.

But Smisek's toughest challenge lies ahead: winning over workers at the larger United and forging new labor deals with unions hungry for pay and quality-of-life improvements to their contracts.

"The issue obviously is what is going to happen to the various union groups," aviation analyst Julius Maldutis said. "How they will be treated, and how they will treat Mr. Smisek."

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As Smisek and his team begin to knit the former competitors into a single, sprawling carrier, they must also hammer out labor agreements for every worker group, starting with the pilots union.

Smisek told Continental employees last month that he would like to have new contracts in place by the time the new carrier completes its operational merger, gaining a single operating certificate from the Federal Aviation Administration. It's unclear how long that process will last, but Delta and Northwest airlines, which merged in 2008, took 14 months to accomplish that feat.

Once the process is complete, "then all our pilots can fly the combined carrier's aircraft, all our technicians can maintain them, all our flight attendants can crew them, and we will be operating as a single carrier," Smisek said in the Aug. 19 letter. "When we accomplish this … we will be well along in our journey.''

Management and pilot union leaders began negotiating a joint collective bargaining agreement last month and have made good progress, said Capt. Jay Pierce, who heads Continental's pilots union. The two sides have reached agreement on six of the 30 sections in the contract and are close to terms on six other sections.

Pierce is optimistic talks will move faster without the distractions of the financial merger. "Now this step has been taken, management can focus on negotiating our contract and putting their full, unadulterated efforts into getting the labor piece of the puzzle solved."

The most contentious issues have yet to be discussed: pay and outsourcing, Pierce said. In a proposal to management last month, the two pilot groups laid out a plan to gradually bring in-house the flying of 70- and 90-seat jets as contracts with regional carriers expire and as smaller aircraft become obsolete.

Tilton, speaking after United's shareholder vote, said such a move would be a radical departure. United's business model is to carry passengers from its hubs to large cities, he noted, relying on contract partners to fly smaller planes on routes that wouldn't otherwise be profitable.

"Neither company is going to fly (Boeing) 737s or Airbus A320s to Minot, N.D.," Tilton said.

Friday's vote, whose outcome was never in doubt, was a triumph for Tilton, who will become nonexecutive chairman of the new United after helping shepherd the deal; 98 percent of voting shareholders at both carriers supported the $3 billion deal. United will pay Continental shareholders 1.05 shares of United common stock for each Continental common share they own.

"This company has a great future: It's going to be in Chicago. It's going to be United Airlines," an ebullient Tilton told a standing-room-only shareholders meeting at United's sprawling suburban Chicago campus. "We should all be very proud."

A tireless advocate of consolidation since he joined United in 2002, Tilton guided the carrier through a controversial three-year bankruptcy, warred with its union leaders, turned around operations and finally completed the merger that he believes is crucial to long-term financial stability.

But many United workers are impatient to share in the financial success of the company and to regain wages that they gave up during its bankruptcy.

"Executives are getting rich on this merger," said Craig Symons, who heads United's flight dispatchers union. "United employees have been working under concessionary contracts since 2003, and we'd like to get something."

jjohnsson@tribune.com