Labor issues shroud Southwest-Frontier deal

NEW YORK (Reuters) - Seniority was a major sticking point during labor talks between pilots for Southwest Airlines (LUV.N) and Frontier Airlines Holdings Inc FRNTQ.PK Wednesday night, the head of Southwest's union said on Thursday.

Talks ended at a draw on Wednesday night in Dallas, but union officials were prepared to resume discussions on Thursday and through the weekend if necessary, said Carl Kuwitzky, president of the Southwest Airlines Pilots' Association (SWAPA).

Southwest's union offered to place Frontier's 700 pilots at the bottom of their pilot seniority master list.

"We think we've offered a very fair proposal that protects their jobs first and foremost, their pay and domicile rights," Kuwitzky told Reuters. "I think they have a much brighter future with Southwest than they do under Republic."

The head of the Frontier Airline Pilots' Association was not available for comment.

Southwest submitted a $170 million bid for Frontier on Monday in hopes of elbowing out a rival $108.75 million offer from Republic Airways Holdings Inc (RJET.O). <ID:N10540482>

An agreement between the two labor unions is integral to the success of Southwest's proposed merger with Frontier, a Denver-based airline that filed for bankruptcy last year. Earlier this week, executives said Southwest did not want to proceed with a merger without employee support.

An auction for Frontier was slated to begin August 13 and possibly last until August 17, Southwest said.

"We can confirm that SWA is still a participant in the process," Southwest spokesman Brad Hawkins said in an e-mail. "The process allows for the auction to continue through August 17, if needed."

TEAMSTERS LOCAL 961 SPEAK OUT

Other labor issues also surfaced on Thursday. The head of the Teamsters Local 961, which represents 415 mechanics and other workers in Denver, said two Southwest executives told union members the company would likely liquidate Frontier and keep only a few employees.

"They only intended on keeping approximately 30 maintenance employees," said Matthew Fazakas, president of the union local. "You have to apply for jobs and you'd be stapled to the bottom of the seniority list.

"I just think the whole thing is outrageous," he added.

A Southwest spokeswoman said the company could not comment on labor issues related to the merger because the bankruptcy proceedings were confidential.

Dallas-based Southwest has said a Frontier acquisition would help it expand in the United States and allow it to explore international routes. Southwest's bid for Frontier is just shy of its entire annual profit last year of $178 million.

Shares of Southwest rose 2.6 percent, or 23 cents, to $9.24 on the New York Stock Exchange Thursday.

"The market is not surprised about the union talks not going through smoothly because they never do," said Hunter Keay, analyst with Stifel Nicolaus. "It's not exactly a dead deal yet."

In a call with reporters earlier this week, executives said they were keen to retain Lynx Aviation, a Frontier subsidiary serving 15 regional markets around Denver.

Kuwitzky said SWAPA has started talks with pilots with Frontier's Lynx Aviation unit and said his union would look to strike a similar deal with them.

(Editing by David Gregorio)