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Northwest Calls Concessions Crucial

Posted on: Tuesday, 17 January 2006, 21:01 CST

NEW YORK _ Northwest Airlines officials told a federal bankruptcy judge Tuesday that the company's very existence depends on winning concessions from two large unions.

The unions, in turn, questioned the scope and depth of the cuts Northwest is demanding.

The airline asked U.S. Bankruptcy Judge Allan Gropper to let it void its contracts with the Air Line Pilots Association and the Professional Flight Attendants Association, imposing new work rules and salaries. Northwest estimates its proposals would save about $361 million from changes to the pilots' package and $195 million from the attendants'.

Under its proposal, Northwest would cut the average annual pay for its pilots by 25 percent to $118,302. Lee Sehan, an attorney for the flight attendants, said Northwest's plan would reduce the annual pay of a flight attendant with 15 years' experience from $44,000 to $35,000.

Northwest's attorneys told the judge that the company needed the savings to compete against low-cost airlines, replenish its dwindling cash reserves and replace an aging fleet of planes. The company says the entirety of its cuts would generate savings of $1.4 billion a year.

"The status quo can't continue," said Brian Leitch, an attorney for Northwest. "It should be clear that Northwest isn't too big to fail."

The unions, which have threatened to strike if Gropper throws out their agreements, said, while they agreed with the need for cuts, Northwest's proposals are riddled with flaws, including changes to work rules that have little to do with cutting costs.

"This great and proud company is off course," said Richard M. Seltzer, an attorney for the Air Line Pilots Association, which has 5,000 members at Northwest. "Unless there is a correction, this journey may not end as we want it to."

All sides assured the judge that negotiations were continuing. The hearings may continue for a few days. Over the weekend, Northwest reached a compromise with its largest union, the 14,000-member International Association of Machinists District 143, representing ground workers.

Northwest's first expert Tuesday testified that the company's labor costs were now the highest in the industry and more than 60 percent higher than low-cost airlines such as Southwest and Spirit, which have been taking market share from Northwest.

"If Northwest is not able to make a very substantial reduction in its labor costs ... its prospects for emerging from bankruptcy are quite dim," said Daniel M. Kasper, managing director of LECG LLC, a consulting firm.

Northwest's bankruptcy in September came at the end of what Kasper called the worst period in the history of the U.S. airline industry, which he estimated has lost $30 billion since 2001.

The company won temporary concessions last fall, cutting workers' pay by as much as 24 percent. Its original proposals went much further, cutting wages, benefits and shifting many jobs to two new subsidiaries. One new company, dubbed NewCo, would be a feeder carrier flying 76- to 100-seat jets, which would take over many of the routes now flown by higher-paid Northwest pilots.

The other company, dubbed GroundCo, would employ gate and ticket agents and ground workers at Northwest's large and midsize destinations, outside its hubs. At smaller destinations, it wants to outsource that work to either GroundCo or another company.

But with strenuous objections from the unions, Northwest said in court filings that it was willing to back away from those proposals should the unions make up the lost ground elsewhere.

Attorneys for the unions raised several doubts about Northwest's calculations Tuesday. Thomas Ciantra, an attorney for the pilots' union, noted that while Northwest said its pilots were among the highest-paid in the industry, it excluded the lower pay of the 20 percent of Northwest pilots who fly DC-9s.

The unions said while they wanted Northwest to emerge from bankruptcy, they were afraid that too-deep concessions would only be copied by other carriers, setting the whole process in motion again.

"What we do today will be leap-frogged tomorrow," Sehan said. "We certainly don't want American and Continental to follow in our footsteps."

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Source: Detroit Free Press

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