"This company will be no more. . . . Certainly it lived a full life. . . . We should be gratified that the death is of natural causes; it is not the mercy killing that it would have been just a few years ago. Western Airlines is passing on with class and dignity, its burial with honors befitting its heroic efforts."
--From "A Final Wish," a message to employees by Thomas J. Greene, general counsel of Western. Passengers flying from Honolulu to Los Angeles at 11:10 p.m. Tuesday will be greeted by a flight attendant saying: "Welcome to Western Airlines Flight 566." About five hours later, the same flight attendant will say: "Delta Airlines welcomes you to Los Angeles."
The passengers need not be confused. At midnight on March 31, Western, the nation's oldest airline and a Los Angeles institution that began flying airmail in 1926, will pass into history.
The large red W's on Western's planes will have been replaced by Delta's red, white and blue color scheme. At ticket counters and boarding areas, Western signs will give way to Delta signs. Pilots and flight attendants will sport new uniforms. And the Western name will disappear.
In what observers of the airline industry contend is the best combination of all of the numerous major airline mergers of the last 18 months, Western was bought by Delta Airlines late last year in a deal now valued at nearly $900 million.
Western had made a surprising recovery in 1984 after having been on the brink of bankruptcy. But it was just not big enough to survive the rigors of competition in the environment of airline deregulation. Western was caught among the giants.
"We did not have the economic or the technical wherewithal to succeed," Chief Executive Gerald Grinstein said in an interview the other day. Western, he said, "couldn't afford a 300-airplane fleet, and it had no computerized reservation system, an essential ingredient in this business." (On April 1, Grinstein will become vice chairman of Burlington Northern, a transportation and natural resources development company.)
While the two carriers went through the consolidation process, Western retained its name. Extinguishing the name is one of the last chores to be accomplished before the Delta-Western merger is complete.
Delta and Western took their time in accomplishing the merger, trying to avoid the upheaval and controversy that has tainted other recent airline acquisitions. Some other merger partners--Northwest and Republic airlines provide a good example--have managed to antagonize both their employees and the flying public. But Western and Delta moved one step at a time, and the transition so far has been relatively smooth.
For Delta, the acquisition of a partner was as important as it was to Western. And the marriage with Western was a dream come true for Delta.
The Atlanta-based airline had a big gap in its system. A powerhouse in the eastern United States, it had little presence elsewhere at a time when success goes only to airlines that can grab the most passengers for the longest flights.
For Delta, the consolidation with Western was a natural fit. The pieces meshed like those of "a picture puzzle," one observer said. A merger "made in heaven" is how another described it.
Before the merger, the two carriers had only five competing routes. As they blended their route maps and schedules, the remaining routes were connected end to end.
As it watched one airline after another join forces with competitors, Delta was confronted with two choices. Even before the Delta-Western merger was agreed upon in September, it had its eye on Salt Lake City, where Western has had its major hub. To penetrate the West, Delta could either buy a lot of additional airliners and expand its own route system or it could take over another airline that already had a major presence in that part of the country. Western fit the bill.
"We look at the merger as filling a void in our pattern of service," Ronald W. Allen, Delta's president and chief operating officer, said in an interview. "You couldn't really go out and design it much better than these two airlines fit together."
The new combined airline will be a force to contend with. In terms of revenue passenger miles (one paying passenger carried for one mile), it will be fourth largest of the new giant carriers, behind only Texas Air Corp. (which owns Continental Airlines and Eastern Airlines), United Airlines and American Airlines.
It will carry 152 million passengers annually to 153 destinations. Its daily departures will number more than 2,180; its fleet will consist of more than 360 jets, and it will have 48,000 employees. In Los Angeles, the airline will become second only to United in number of daily flights.
The meshing of the two airlines will link Delta's three hubs--Atlanta, Dallas/Fort Worth and Cincinnati--with Western's two hubs in Salt Lake City and Los Angeles. This will enable Delta to develop new east-west markets and to fortify its existing north-south operations along the East Coast. The strong hub-and-spoke system will enable the new Delta to hold on to more passengers for their entire trips, people who otherwise would probably have transferred to other carriers at some point along the way.
Western has served 32 airports west of the Mississippi River not served by Delta, and there are 55 airports that Delta has served where Western has not provided service. After the merger, the new Delta will serve a total of 4,760 city pairs (routes between two particular cities). The old Delta served 3,000 city pairs.
Benefit to Delta
Financially, the results will be awesome. The revenue increase from the added business is estimated at $1.5 billion in the 1987 calendar year by Helane Becker, airline analyst in New York with the investment banking firm of Drexel Burnham Lambert.
Robert W. Coggin, Delta's assistant vice president for marketing development, said Delta will realize great economies in the merger, allowing a greater-than-normal proportion of revenue to filter to the bottom line as profits.
Helping in this regard will be the increase in the average length of flight per passenger, the so-called stage length. Pre-merger Delta carried passengers an average of 700 miles. After the two systems merge at midnight Tuesday, that figure will be increased by somewhere between 65 and 100 miles as a result of Western's long hauls to such places as Honolulu and Alaska.
The longer stage lengths lower the break-even load factor--the percentage of seats that must be occupied to meet expenses. The shorter the stage length, the greater the expenses and the higher the break-even load factor.
In the quarter ending Dec. 31, Delta's break-even load factor was 48.54%. With shorter stage lengths, planes take off and land more frequently, boosting fuel costs and airport usage fees. And, on the shorter hops, the airline is able to obtain less overall working time from its flight crews.
Certainly such profitability is nothing new to Delta. Since it began as a crop-dusting company in 1924--its first passenger flight did not take place until June 17, 1929--it has had only one unprofitable year.
"Delta's profitable operations and conservative financial leadership . . . have made it the envy of the industry," said Louis A. Marckesano, airline analyst with the Janney Montgomery Scott brokerage in Philadelphia. "We are looking for them to have the highest profits among the airlines this year," he said, referring to both the calendar year and Delta's fiscal year, which ends June 30.
Not Without Problems
Airline observers think that Delta might have plans for further expansion. Once it digests Western, these observers think, Delta may be interested in increasing its presence across the Atlantic, perhaps by picking up money-losing Pan American World Airways, which is believed to be for sale.
But the Delta-Western consolidation has not been entirely trouble-free and, before such matters as transatlantic expansion can be pursued, Delta must overcome the challenge of integrating the two work forces.
Among Delta employees, only pilots belong to a national union; its only other unionized employees are 150 dispatchers who belong to an in-house labor group. Western, on the other hand, has contracts with the Teamsters Union, the Transport Workers Union, the Assn. of Flight Attendants, the Air Line Pilots Assn. and the Air Transport Employees, a local union representing clerks and ramp workers.
With the exception of the pilots union, Delta has refused to recognize Western's unions.
"Come April 1, it is our position that, under the Railway Labor Act, the Western (labor) contracts are extinguished," said Hollis L. Harris, senior vice president for operations. "Even the pilots' contract will be folded into the present Delta contract."
But Ray Benning, president of Teamsters Local 2707 in Los Angeles, maintains that the union contracts will still be in force despite the merger. When Western's employees made wage concessions a few years ago that saved the airline, he said, Western agreed, in the event of an unfriendly takeover, to require the purchaser to assume the obligations of the union agreements.
(Although the two airlines consider the merger to be friendly, the Teamsters' representative on the Western board of directors voted against the deal, making it "unfriendly" in the Teamsters' eyes.)
The unions have already taken Delta to court on the issue. But the litigation is not expected to delay the consolidation.
Delta's response to the unions' challenge was that it did not even have to guarantee jobs to Western's employees but did so voluntarily.
Delta says it will not submit to arbitration and that the only way the unions can be recognized at Delta is for votes to be taken within individual trade groups--combining Western's unionized workers and Delta's non-union employees who do the same kind of work. To win the right to hold such votes, the unions must get petitions signed by 35% of the combined work force. Then, 50% plus one vote is required for a union to gain recognition.
However, it does not seem likely that the unions will be successful--mainly because Delta employees are so well paid. They receive an average of $51,200 a year, according to Airline Economics, a Washington consulting company. Western workers, on the other hand, receive an average of $36,500.
Delta has said that, within three years, all of the Western employees it absorbs will be brought up to parity with Delta's present workers. As a result, most observers believe, most employees will go along with Delta as a virtually union-free airline. As further evidence, they point to the fact that there is a movement among some employees, members of the Air Transport Employees, to shut down the union, in effect, by distributing to members all of the money in the union's treasury.
Many Will Stay
Although the Western name will not be seen on billboards, hangars and aircraft all over Los Angeles any more, vestiges of its presence will remain. Many of the former Western employees will not have to transfer and will remain at their Los Angeles work stations.
All told, about 2,000 Western workers of a total of 5,000 in Los Angeles were offered transfers to Delta's Atlanta headquarters and to other stations, including Dallas/Fort Worth. However, all pilots and flight attendants based in Los Angeles will stay on, as will many ticket counter agents.
Western used to have its major overhaul base in Los Angeles. However, this kind of work will now be conducted at Delta's major overhaul facilities in Atlanta and elsewhere. More minor maintenance will continue to be performed in Los Angeles.
Western employees who have agreed to transfer must report to their new workplaces within two weeks from April 1. Those who were asked to transfer but refused will lose their jobs. A Delta spokesman said 55% of those offered transfers have accepted; 1% have refused, and the rest have until April 14 to decide.
For some transferring employees, the move will cause hardships.
For example, Thomas Peck, foreman of Western's maintenance shops, is moving to Atlanta but his wife, a Torrance schoolteacher, will remain.
"My wife's been teaching for 18 years," he said. "She would have to take a $10,000-a-year pay cut. We'll just commute. We'll see each other when we can. She gets all the school holidays off."
Another of the merger's labor problems involves the pilots of the two airlines. Because they have not yet meshed their seniority lists, the pilots will not be integrated by midnight Tuesday.
Curbs on Flexibility
As a result, Delta pilots will continue to fly Delta planes and former Western pilots will fly what had been Western planes. The higher-paid Delta pilots want the seniority list to be drawn up according to pay scale. The Western pilots, who generally have more longevity, want length of service to be the criterion.
This limits the flexibility of the new airline. On a flight from Atlanta to Hawaii via Los Angeles, for example, the plane and its cockpit crew must be changed.
Despite such getting-to-know-you problems, the chances are that the enlarged company will have relatively little labor unrest. Historically, Delta has had an unusually smooth relationship with its employees. "One of the most publicized corporate love affairs is between Delta employees and their airline," said a book titled "The 100 Best Companies to Work for in America." It ranked Delta in the top 10.
The airline has never experienced a work stoppage. During the early part of this decade, wage freezes, pay cuts and other concessions by employees were routinely demanded by other airlines. Thousands of airline workers were laid off, and a number of carriers filed for bankruptcy.
Delta, in contrast, gave its workers an across-the-board pay raise of 8.5% in 1982. And, even during difficult periods, there have been no layoffs at the airline.
During the 1973 oil embargo, when Delta's schedules were greatly curtailed, the company had to reassign 600 pilots and flight attendants to other jobs. They loaded cargo, cleaned airplanes, sold tickets and made reservations. Though it was a blow to their pride and to their paychecks, they continued to be paid and to maintain their seniority and benefits.
Delta's romance with its employees has resulted in some events almost unthinkable elsewhere in contentious corporate America.
In 1982, a Delta pilot who was retiring spent $8,000 to buy a full-page advertisement in the Atlanta Constitution to tell the public: "It has been my privilege to work with the finest group of human beings that God ever created" in "an organization that has been exceedingly well managed."
Not long thereafter, Delta's workers chipped in to buy the airline a $30-million Boeing 767 jet that, appropriately, was named the "Spirit of Delta."
There is one drawback to such warm employee-company relations: Employee turnover is about 0.3%, so it is difficult to move ahead in the company.
No Beards Allowed
Also, Delta is known for its conservative personnel rules; some critics even call it puritanical. And that will mean something of a culture shock for Western employees who will be joining Delta.
For example, Delta allows no employees--even those who do not deal with the public--to grow beards; mustaches must be closely trimmed. So, Western employees with beards will have to shave--and they are not at all happy about it.
"I think it is discriminatory," said machinist Will Hamilton the other day as he worked in the Western hangar at Los Angeles. "I am not a new employee. What has my haircut got to do with my ability as a worker?"
But, despite his annoyance, Hamilton said that when he moves to Atlanta he will shave and remove the earring from his left ear. "My beard isn't worth $40,000 a year," he said.
Allen, Delta's president, explained the philosophy: "We keep pretty tough standards here. There's a certain presentation we want to make. And that's a very clean-cut, straightforward presentation, one that makes the passenger comfortable in traveling with Delta."
Why make the behind-the-scenes workers, such as mechanics and baggage handlers, adhere to these rules?
"We have single standards," Allen said. "It is possible for the mechanic working behind-the-scenes today to be working on the line (with the public) tomorrow."
And there are other differences for Western employees to get used to. At Western, for example, married couples have been able to work for the company and may even fly together. Delta will not hire married couples, though it will not fire those who get married while working for the airline and will not fire those coming over from Western. But it will not allow married couples to fly together.
"We have tried to keep close relatives in any area from working side by side or where one is working for the other," Allen said. "We think that this can lead to favoritism."
Capt. Lynn Hudgins, assistant chief pilot of Delta, has another view of the potential problems. He said married couples are not allowed on the same flight crew to avoid trouble. Supposing, he said, that a woman flight attendant is "pinched on the bottom" by a passenger; if the pilot is her husband, Hudgins said, "he might come back and punch him one."
Labor problems and personnel rules are not the only rough spots in the Western-Delta merger.
There are also important philosophical differences in the way the two airlines conduct business. For instance, at Western all departments prepare annual budgets. There is no such procedure at Delta. Instead, every Monday morning the six division heads meet with Allen and with David C. Garrett, Delta's chairman and chief executive. They review what is termed the authorization for expenditure--any expenditures, anywhere in the company, that come to $1,000 or more.
The procedure is better than "having people burning up a month of their time figuring up a budget," Whitley W. Hawkins, Delta's senior vice president for marketing, said, "or having a constraint that's put on you by a budget. When you run down to the end of it, you realize you're out of funds--and you still have two months to go. Or, conversely, saying: 'We'd better spend this money--or we're not going to get it again next year.' "
Expenditures considered at authorization meetings range from the purchase of airplanes to repair of a door in the washroom at Delta's facility at Chicago's O'Hare Airport ($1,252) and the cost of upholstery cleaning in the Delta Crown Room at O'Hare ($1,447).
And there are thousands of details, many of which seem insignificant, for the merger planners to think about. For instance, Western's bag tags are slightly slimmer than those of Delta. Thus, Delta's won't fit into the cubbyholes at Western's check-in counters. Delta is widening them all slightly.
For Western employees, Tuesday will probably be a sad day. When asked if he thought the name Western would even be remembered in a few years, Grinstein looked at the ceiling and thought for a few moments.
He likened the merger to a surgical procedure.
"Western will become the heart of Delta," he said. "In a heart transplant operation, who remembers the name of the donor?"