NWA pilots ready for more concessions

09/02/2005

Liz Fedor,
Star Tribune
September 2, 2005

The threat of bankruptcy has intensified for Northwest Airlines, and its pilots union reacted Thursday by saying it is ready to agree to new wage concessions for its 5,700 members.

“We’ve been trying to stay out of bankruptcy for three years now,” said Mark McClain, chairman of the Northwest branch of the Air Line Pilots Association (ALPA). During a special meeting in St. Paul, pilot leaders unanimously approved a resolution to begin talks with Northwest.

“A new concessionary agreement does not guarantee Northwest’s viability or even the avoidance of a Chapter 11 filing, but taking no action does guarantee a Chapter 11 filing,” the pilots said in their resolution.

The airline’s management gave new, stark details of its grave financial condition in a regulatory filing Thursday with the Securities and Exchange Commission. It projected a net loss of $350 million to $400 million in the third quarter, or about $4 million a day. Northwest’s total fuel expense in 2005 will be about $3.3 billion, or more than double the $1.6 billion that it spent on fuel in 2003.

Fuel prices, near record highs even before Hurricane Katrina devastated the oil production and refining facilities of the Gulf Coast, have been soaring since the storm hit on Monday. Wall Street took notice of Northwest’s plight, sending the company’s shares down 21 percent Thursday to $3.97, off $1.06. About 17.5 million shares changed hands, the heaviest volume since members of the Aircraft Mechanics Fraternal Association (AMFA) went on strike on Aug. 19.

Delta Air Lines shares closed down 10 percent to $1.04. Many analysts believe a Delta bankruptcy filing is unavoidable.

Eagan-based Northwest has lost about $3.6 billion on its operations since early 2001, but it has stayed out of bankruptcy court by selling assets and borrowing money. Now its supply of cash is eroding. On Thursday, the company reported that its unrestricted cash balance fell from $2.14 billion on June 30 to $1.7 billion on Aug. 31.

Laundry list of risks

Northwest provided a laundry list of “bankruptcy risks” in its filing to the Securities and Exchange Commission. The company cited rapidly declining liquidity, the high fuel prices, the lack of assurances over pension relief in Congress and uncertainty over the outcome of its concessionary negotiations with its labor unions.

“As a result of the recent spike in jet fuel prices, the time period for the company to resolve these problems has been reduced,” Northwest said in the filing.

On Wednesday, Philip Baggaley, Standard & Poor’s credit analyst, said, “The outcome of labor negotiations with its various unions over the next six weeks remains the key issue in whether the airline can avoid bankruptcy.”

McClain said the pilots are ready to make sacrifices that are “reasonable and necessary in the current environment.”

However, he added, “We are not interested in working cheaper than everybody else and taking draconian cuts just to provide the lowest-cost tickets to the West Coast.”

A 15 percent pay cut for pilots went into effect last December. That reduced pilot costs by $250 million a year. Now, Northwest is pressing the pilots for another $322 million in cuts, and McClain said the carrier’s wish list would reduce pilot pay by a further 22.3 percent. The airline also has suggested reducing the scope of flying for Northwest pilots, which would lead to up to 1,181 job cuts.

“We’re going to want to minimize pay cuts and minimize layoffs,” McClain said.

500 on furlough

Under the current contract, Northwest pilots earn from $35,000 to $206,000, depending on their seniority and the planes they fly. About 500 pilots are on furlough, so no one flying is on the low end of the pay scale.

In a written statement, Northwest management said it was pleased that ALPA leaders will begin contract talks. “We look forward to reaching agreements with ALPA and the rest of our unions so that we can realize needed labor cost reductions,” the carrier said.

Since March, Northwest has been seeking $1.1 billion in labor cost cuts from its union and salaried employees. On Thursday, the airline said that “due to its worsening financial condition” the company probably “will have to increase the $1.1 billion labor cost savings target.”

Steve MacFarlane, assistant national director of AMFA, said in a Wednesday interview that he has heard that Northwest might increase its cost-cutting goal to $1.5 billion. Northwest did not provide a new figure.

MacFarlane said the other unions should take note of Northwest’s unyielding stance at the bargaining table with AMFA. He maintained that Northwest triggered the strike by refusing to accept substantial cuts that the mechanics offered. Now, he argued, Northwest intends to increase the concessionary goal for employees “rather than passing on the cost of fuel to their customers.”

McClain took a similar stance: “Northwest employees should not pick up an inordinate amount of the fuel costs.”

Federal bankruptcy laws will change on Oct. 17, and one effect will be to reduce the amount of time company managements have the right to propose reorganization plans rather than have the courts dictate those terms. Analysts have said any airline bankruptcies are likely to take place before Oct. 17.

McClain said Northwest and ALPA might reach an agreement by that date, but he did not predict whether it will happen because he said it hinges on Northwest’s performance in negotiations.