The Air Campaign

With the recent merger between US Airways and American Airlines, experts say managers and supervisors at both airlines will have their hands full ensuring that employees can focus on their jobs during the typically tumultuous and drawn-out airline-merger process.

Wednesday, March 13, 2013
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The recently announced merger between US Airways and American Airlines will be, if nothing else, a combination of two very different corporate cultures.

"The cultures at American Airlines and US Airways might be considered almost diametrically opposed to one another," says Kurt Weyerhauser, managing partner at Los Angeles-based executive-search firm Kensington Stone.

"US Airways is, essentially, a bunch of airlines cobbled together over the years, whereas American evolved more organically," says Seth Kaplan, an industry analyst and managing partner of Airline Weekly, a newsletter based in Fort Lauderdale, Fla. "Although they've bought a airlines over the years -- including TWA -- at every level of the company you can trace the lineage back for decades."

Weyerhauser, whose clients include a large number of domestic and international air carriers, says American is recognized throughout the industry as "a very regimented, analytically focused, policy-driven company with strict rules and hierarchy.

"The joke about American was that you needed a persuasive PowerPoint presentation just to schedule a meeting," he says.

US Airways is a much more informal place, says Weyerhauser, with a culture that espouses corporate guidelines more than rigid rules and an "almost entrepreneurial spirit where even half-baked ideas can, at times, get consideration."

The merger has sparked controversy and concern among air travelers, who worry that the giant combined airline will depress competition and lead to higher airfares. The CEOs of both airlines testified at a recent Congressional hearing on antitrust issues that the merger will actually result in improved competition against other large airlines, such as Delta and United.

It's also generated concern in the Phoenix area, where US Airways has its corporate headquarters as well as a major airport hub, and employs approximately 6,000 people. Although US Airways is, in effect, buying American, the headquarters for the combined company (which will operate under the American Airlines name) will be based at American's headquarters in Fort Worth, Texas, which will be "interesting" for the management structure, says Kaplan. 

Managers and supervisors at both airlines will have their hands full ensuring that employees can focus on their jobs during the typically tumultuous and drawn-out airline-merger process, says Ravin Jesuthasan, Towers Watson's global head of talent management whose roster of clients has included 15 airlines.

"It's a real challenge keeping the 90 percent of airline employees who interact with customers on a daily basis focused on their work, rather than worrying about possible changes to pensions and seniority rules," says Jesuthasan. 

Building cohesive employee teams could prove to be another hurdle, he says.

"This industry is a relatively small one, unlike retail or pharmaceuticals, and it has a very defined number of players, so you'll often end up with a situation in which folks who'd worked for competing airlines are now expected to work together, and that presents its own unique set of challenges," says Jesuthasan.

Employee misgivings about a merger can prove to be a bigger disruptor than in other industries, considering that major airlines tend to be heavily unionized, with collective-bargaining agreements covering 90 percent of employees at the typical airline, he says. At the same time, the large number of bankruptcies that roiled the industry in the wake of 9/11 has resulted in a "fairly uneven playing field" with respect to employee compensation, with some companies within the industry having slashed pay and pension benefits for their workers after filing for bankruptcy (American itself is in bankruptcy protection).

Seniority considerations are also a big factor, he says. Eight years after the 2005 merger of US Airways and America West, seniority issues between the pilots groups at the respective airlines are still being resolved, he adds. 

Judging by that recent history, Weyerhauser says, the outlook for a smooth merger may not be so good.

"If the US Airways/America West merger is any indication of things to come, [this] merger has the potential to become one ugly baby," he says. "Privately, many people still talk about how poorly the merger of America West and US Airways went and how, eight years later, there are still parts of the company that remain relatively separate, not only culturally but operationally."

A notable feature of US Airways' approach this time, which may have smoothed things out, was its pre-merger outreach to unionized employees at American, say Kaplan and Weyerhauser.

US Airways may have learned an important lesson in this regard when it tried to take over Delta Airlines six years ago, says Weyerhauser. Among the deterrents was a major campaign by Delta employees against the takeover known as "Keep Delta My Delta," he says.

Indeed, Delta is one airline that serves as a model for how to do a merger -- the company won accolades for its relatively smooth acquisition of Northwest a few years ago, says Kaplan. One of the things Delta did was to reach out to Northwest employees early on in the process and get their support for a merger, he says.

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In US Airways' case, it had a draft deal regarding compensation in place with the major unions at American prior to the merger announcement. "The result was that American's employees were behind the merger even before American's management was," says Kaplan.

The American pilots union approved a so-called "memorandum of understanding" for a combined airline in December, the Arizona Republic reported. "Our motivation was twofold," Gregg Overman, communications director for the Allied Pilots Association (which represents the pilots at American), told the paper. "We had severe concerns about [American Airlines'] business plan."

The potential drawback to pre-merger outreach of this nature is that you may risk "giving employees a blank check," says Kaplan.

However, labor strife has accompanied so many airline mergers -- the most recent example being that of United and Continental, which did not involve pre-merger outreach and ended up being "very rough," he says -- that incurring some extra costs may be worth it.

What's working in favor of US Airways today is that it's in a significantly better financial position than it was when it merged with America West, he says.

"This is not a 'desperation merger,' like the America West one," says Kaplan. "This time, they are going to have more money to play with in order to buy labor peace. Money can't buy you everything, but it buys a lot of things."

Crucial to the merger's success will be the selection of a merger team that is made up of the best of their current leaders who will be given clear authority to create a successful entity, says Weyerhauser. US Airways recently announced that its president, Scott Kirby, and American Airlines Chief Restructuring Officer Beverly Goulet will jointly direct transition planning for the merger. The two will serve as part of a transition committee headed by US Airways CEO Doug Parker and American Airlines CEO Tom Horton.

As for keeping daily operations running smoothly during the merger, incentive plans and supervisor training have been proven to reap dividends, says Jesuthasan.

"Putting in place new incentive plans that are designed to rally everyone in both organizations around a single focal point -- are we getting planes out on time, for example -- and training supervisors to be more like coaches than traditional supervisors, have proven to work pretty well," he says.

And then there's the old constant that you can never communicate too much during a merger, says Weyerhauser.

"Constant, consistent, honest communications create a sense of predictability that can at least reduce fear and anxiety and allow employees to better focus on the task at hand," he says. "It's when communications are sparse or inconsistent . . . that the rumor mill ratchets up the level of fear and anxiety."

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