By Deepa Seetharaman and Kyle Peterson
NEW YORK/CHICAGO (Reuters) - The marriage ofUnited Airlines parent UAL Corp and ContinentalAirlines Inc will be official as early as this week,but the honeymoon will be fleeting as the carriers confront themonumental task of blending 87,000 employees into oneworkforce.
The work is well under way for the airlines as they form anew United Airlines -- the world's largest carrier. But thebiggest chores remain, as the carriers attempt to realize morethan $1 billion in annual revenue and cost savings by 2013.
"In order to get the synergies and cost benefits, youreally have to go to a single entity," said airline consultantRobert Mann at RW Mann & Co.
Mann said labor integration will be an enormous hurdle. Thenew company and its unions must negotiate transitionagreements, and seniority integration and single contracts.
"Those are going to be really intensive efforts," he said.
The airlines are targeting Oct. 1 to close United's $3.17billion all-stock purchase of Continental. Shareholders at bothairlines approved the deal on Sept. 17.
The new carrier will be based in Chicago and be led byChief Executive Jeff Smisek, the current CEO of Houston-basedContinental. UAL is led by CEO Glenn Tilton, who will bepresident of the new United.
United and Continental formed a strategic alliance in 2008after previous failed merger talks, setting the stage for thefull merger.
"We have a significant competitive advantage here becauseof the alliance between the two companies that existedpreviously," Tilton told reporters after the shareholder vote."Much of the work actually took place when Continental agreedto come into the Star Alliance."
"So a good bit of formational work has been done, which isreally helpful," he said.
The bulk of the new United's work force is represented byunions, and several of the labor groups are represented bycompeting unions.
That means the unions on each side of the nine work groupsmust negotiate with each other over representation, seniorityintegration and contracts.
In each case, talks could easily become thorny. That riskis illustrated by US Airways Group Inc , which mergedwith America West Airlines in 2005 and has yet to fullyintegrate its labor groups.
Delta Air Lines Inc , which bought NorthwestAirlines in 2008, has had much easier labor integration,although the work groups still are not blended.
The new United hopes to follow Delta's example.
"We continue to work closely with all of our labor groupsand will remain focused on reaching mutually beneficialcontracts by the time we obtain a single operatingcertificate," said Doug McKeen, senior vice president of laborrelations at UAL.
McKeen leads a team of 33 staffers dedicated to laborintegration. Continental has a labor team of eight members.
LABORING OVER LABOR
Experts say the integration of pilots and flight attendantshas the greatest potential to disrupt airline operations.
In each case, the unions must blend the work groups withoutdisrupting the seniority accumulated by workers. Senioritydetermines almost every aspect of the work life of pilots andflight attendants -- schedules, routes, compensation.
The pilots are represented by two chapters of the Air LinePilots Association (ALPA). The groups have been meeting inDenver with each other and with the airlines since August.
A person familiar with those talks told Reuters the pilotshave completed a transition plan and agreed on a process tonegotiate a joint contract. The source said the talks probablywill not yield a contract by the end of the year because ofdistractions related to the merger.
A 60-day period of direct negotiations between the 9,700pilots and management is set to end in October.
"We are well aware of the company's October goal of havinga pilot joint collective bargaining agreement in place," saidCapt. Jay Pierce, chairman of the ALPA council representing theContinental pilots.
"That may be the company's target, but we will not settlefor a substandard contract just to meet a timeline establishedby management," he said.
The ALPA chapter at United echoed Pierce's determination toreach a suitable contract without yielding to deadlines.
"Managements of both United and Continental must recognizethe importance of scope protections to the pilots of UnitedAirlines," said Wendy Morse, chairman of the ALPA council thatrepresents United's pilots. She noted outstanding issuesrelated to scope and outsourcing.
"The sooner the company understands (those concerns), thesooner the new United Airlines will realize the advertisedsynergies from the United/Continental merger," Morse said.
The flight attendants, meanwhile, are still negotiatingunder mediation. The 12,900 United flight attendants arerepresented by the Association of Flight Attendants. The 8,300Continental flight attendants are represented by theInternational Association of Machinists.
The flight attendants are in the process of selectingsingle representation. (Reporting by Deepa Seetharaman and Kyle Peterson, editing byGerald E. McCormick)