Last week, AirTran (AAI) announced that it had come to a tentative agreement with its pilots on a new five year contract. Though details aren't being released, I think it's safe to assume that the longstanding gridlock in these talks was softened up thanks to Southwest's (LUV) pending acquisition of the airline.
The new agreement still needs to be voted on by the masses, and we won't know much about it until that happens. In fact, neither party is willing to discuss details yet. All we know from the AirTran side is that it "calls for increased compensation, improved benefits and enhancements to productivity." The pilots only said that it "produced gains."
But why would management and the pilots finally agree to a new contract after 5 years of fighting that never resulted in anything close to an agreement? Southwest. When Southwest announced it was buying AirTran, you have to assume that the importance of getting a contract dropped, knowing that eventually the AirTran pilots would end up on the Southwest contract anyway. So why would they even bother agreeing to a contract?
From the pilot side, it's always a good idea to get a contract that they can use as a starting point for discussions with the Southwest management team. Maybe there are some good work rules changes or something in the pay rates that AirTran pilots can fight to keep when Southwest moves in.
It also looks good for the union, the Air Line Pilots Association (ALPA). The pilots voted ALPA in in 2009 and this is the first agreement that's been struck under ALPA's shop. Since the AirTran pilot group is so much smaller than Southwest, there's little to no chance that ALPA will remain on the property in the merged company. Southwest pilots have their own independent union, SWAPA. But now at least ALPA can walk away saying it was able to get a new contract for its members at AirTran.
On the management side, the pressure for cost containment in a new contract had to go out the window with the merger. AirTran takes pride in having incredibly low costs and wages are a part of that. But with much higher labor cost Southwest coming in, that pressure is relieved. Now, if AirTran agreed to some absurd contract, then that would materially change the value of the deal and Southwest would probably look to renegotiate its purchase agreement at best. So this won't be something insane, but it probably does give some more concessions than AirTran would have been willing to give before. Southwest can give even more when the AirTran pilots come onboard.
But without knowing specific details of the agreement, it's hard to really speculate on this any further. Once the details come out, maybe we'll learn additional reasons why this contract was agreed to now.