Court Blocks Delta-Western Merger at the Last Minute : 3-Judge Federal Panel Halts Deal Until an Arbitrator Rules on Whether Carrier Must Honor Two Union Contracts

A federal appeals court in San Francisco on Tuesday blocked the completion of the merger of Delta Air Lines and Western Airlines until an arbitrator has ruled on whether Delta is obliged to honor two union contracts covering 7,000 Western employees.

The three-judge panel ruled unanimously in response to motions filed by the Air Transport Employees, who represent Western’s reservation agents, clerks and ramp employees, and the Teamsters Union, which represents maintenance workers and others.

The appeals court consolidated separate suits that had been filed by each union seeking arbitration of so-called successor clauses in collective bargaining agreements it had with Western. The clauses are intended to protect unionized employees in the event of a takeover by another firm.

Delta announced last September that it was purchasing Western for nearly $900 million. The merger was financially completed in December, and Western has been operated as a Delta subsidiary since then.

However, several major operational aspects of the merger were to be completed today, with Western formally vanishing as a separate company, its planes being painted with Delta colors and employees moved, among other actions.

Sources at Western said the decision had thrown the company into confusion. Officials said they did not know whether they should go ahead with changing the signs on Western’s buildings or having Western employees wear Delta uniforms. They said they did not even know how Western employees should answer the telephone today.

Just before midnight, Linda Dozier, a Western spokeswoman, said that today Western “will operate as Western, not as Delta.”

An arbitration hearing in the Teamsters’ case was held Tuesday, and the Air Transport Employees’ case is scheduled for hearing next Monday and Tuesday. Rulings could come anytime from a week to two months after the hearings.

All but 8% of Western’s employees are unionized, but Delta’s pilots are that carrier’s only union members.

At issue ever since the merger was announced has been whether Western’s unions would continue to represent Western employees after the integration of the two carriers. Delta has maintained that the Western unions will be “extinguished” after April 1, but the unions assert that their contracts should remain valid.

The unions are particularly emphatic on this point because employees gave Western millions of dollars of concessions in recent years when the airline was in financial difficulty.

As part of those agreements, the unions negotiated special successor clauses, which stipulated that the contract would continue in force in any merger or acquisition until union seniority lists are integrated with those of the surviving company.

Jim Shields, president of the Air Transport Employees in Los Angeles, called Tuesday’s decision “a tremendous victory for working people in the organized labor movement in this country. The decision will put companies on notice that they will have to honor successor clauses that they have been agreeing to in return for pay cuts and work rule modifications.”

Delta Will Appeal

Delta spokesman William Berry said the airline plans to appeal the ruling to the U.S. Supreme Court “as fast as we can formulate it.”

The decision states that if Delta agrees to be bound by an arbitrator’s decision on whether the successors clauses are valid, then the injunction it issued Tuesday will be lifted.

Henry Weinstein reported from Los Angeles and Robert E. Dallos from New York.