Most Observers Applaud Merger : Delta Takeover of Western Seems Near-Perfect Match

There is a saying among the employees of Delta Air Lines, which plans to buy Western Airlines: “It takes an act of Congress to get a job at Delta, but it takes an act of God to leave a job at Delta.”

“You don’t leave the company unless you die,” Delta spokesman Bill Jackson said Wednesday, adding that the Atlanta company has not laid off an employee since the early 1950s.

Analysts and other observers have generally applauded the proposed merger of Delta and Western--announced Tuesday--as a good fit that will bolster Delta’s West Coast operations and augment its European service with Western’s routes to Mexico.

The one potential hitch, they say, is the difficulty of blending the 10,000 unionized Western employees with Delta’s largely non-union work force of 39,000. Only Delta’s approximately 4,000 pilots and 50 flight dispatchers belong to unions.

But Delta foresees no difficulties in the transition, pointing to the company’s no-layoff policy, its high wage rates and good employee morale.

Delta has taken over two unionized airlines in its history: Northeast Airlines in 1972 and Chicago & Southern Airlines in 1953, Jackson said.

In each case, employee groups voted on whether they wanted to be represented by a union, he said, and the same procedure will be followed in the merger with Western. Los Angeles-based Western will be operated as a subsidiary for about a year before the two operations are consolidated.

“The good thing about this is both Western and Delta have reputations for having a very supportive work force, and the morale among the employees and the relationship between the employees and management has been excellent,” Jackson said.

Western, for its part, said through a spokesman that “initial indications are that Western’s employees are delighted with the news. Both Western and Delta are service-oriented companies with similar culture and morale, and we don’t foresee any difficulty in consolidation of the two work forces.”

Western’s unions either see no problem with the merger or have remained silent on the transaction. The unions have four representatives on Western’s board of directors, which approved the definitive merger agreement on Tuesday at a meeting in New York. Western, however, would not say whether the vote was unanimous.

Thousands of Western employees, who own a roughly 12% stake in the airline, stand to make a tidy profit if the deal receives the approval of stockholders and regulators. In the proposed transaction, which is valued at $860 million, Western shareholders would receive $6.25 in cash and Delta stock worth $6.25 for each Western share.

In 1983, in exchange for wage concessions, the average Western employee got 780 company shares then worth $4.125 each. A worker who has held onto those shares would have a capital gain of more than $6,500 under the merger transaction.

Western Airlines’ stock was the most actively traded issue Wednesday on the New York Stock Exchange with 8.8 million shares changing hands. The stock price closed at $11.625, unchanged from Tuesday’s closing price.

Some observers speculated that the activity indicated that investors expect a higher competing bid may be forthcoming for Western. However, most investment analysts said they doubt that such a bid will be forthcoming, especially since Western granted a Delta subsidiary an option to buy 32.7 million authorized but unissued shares, or about 30% of the firm.

“I certainly wouldn’t rule out the possibility of another bid,” said David Sylvester, an analyst with Montgomery Securities in San Francisco. “The option is a big pill to swallow for a competitive bid, but there are a lot of carriers out there with the money to do it.”

Scott Drysdale, an analyst in the Seattle office of Birr, Wilson & Co., disagreed. “If someone else wants it, my God, they’ve got to want it pretty bad to put so much money in the coffers of the boys from Atlanta,” he said.

The potential problems and cost of integrating the two air carriers’ employees also caught the eye of Moody’s Investors Service. The debt rating agency said Wednesday it had placed Delta’s and Western’s long-term debt ratings under review for a possible downgrade.

Moody’s said it will examine the amount of external financing that Delta will need to buy Western “and cash flow implications for both airlines. Also critical to the rating review are what synergies the acquisition would create and the effect on both labor relations and labor costs of combining Delta’s higher-paid non-union (except for its pilots) work force with Western’s lower-paid but highly unionized one.”

Drysdale called the combination of the two companies’ work forces a “key question” about the merger, which is not expected to encounter any antitrust objections from the Department of Transportation.

“That is the single greatest difficulty of this whole thing,” he said. “That is the issue--how you blend those two work forces together.”

Drysdale sees some significant differences between the cultures of the two corporations.

Delta is an old-line Southern company that promotes from within--its chairman joined the company 40 years ago as a reservations agent--and is used to making money. Western, the nation’s oldest scheduled air carrier, went through several changes of management and five money-losing years before turning a record profit of $67.1 million in 1985.

“You have one company that has been extremely successful and the other company has not, and that breeds a totally different mind-set when you go to work,” Drysdale said. And while Drysdale gives Western’s management “very, very high marks” for the company’s turnaround, “it’s sort of like the difference between being on a winning football team versus being on a losing team.”

Sylvester, the San Francisco analyst, said: “It’s likely that integrating a non-union labor force with a unionized labor force is going to be fraught with problems. However, the corporate cultures at Western and Delta appear similar to me--enlightened management, good labor relations, a focus on heightened service.

“Yeah, there are going to be problems, but I have a high degree of confidence that the problems will be worked out,” he said, noting that it helps that Delta’s work force is larger and better paid. “It would be a little more dicey if it were the other way around.”

Delta’s employees are among the best-paid in the airline industry. In the first three months of the year, the average compensation per employee at Delta was $51,200, including wages and benefits, according to Airline Economics, a Washington-based consulting firm.

Western’s average compensation per employee was $36,500 during the same period. The industry average was $43,200.