NWA says high labor costs could put it out of business
October 13, 2005
BY JEWEL GOPWANI
FREE PRESS BUSINESS WRITER
Northwest Airlines Corp. says it is running out of money fast and seeks sweeping authority to reduce its labor costs, an expense that it says could force it to shut down Michigan's largest carrier.
Addressing a primary reason for its Chapter 11 bankruptcy filing, Northwest wants a federal judge to terminate its nine union contracts and allow the cash-strapped airline to impose lower wages on its 29,000 union workers if the carrier can't convince its unions to make $1.4 billion in concessions.
Proposed NWA cuts
Northwest Airlines wants court permission to reject its contracts.
Union Overall cuts Proposed average wage cuts, current wages
Air Line Pilots Association $611.8 million, including $250 million in cuts already made. 28.4%; top pay is $232.18 based on in-flight hours and other factors.
Professional Association of Flight Attendants $195 million. 17.5%; top pay is $49.10 per hour in flight and other factors.
International Association of Machinists and Aerospace Workers (ground workers) $190.4 million. 5%-12.5%, depending on duties, hourly wages unavailable.
source: Northwest bankruptcy court filing
"Northwest cannot wait until the brink of extinction before seeking relief," the airline, which filed for bankruptcy protection Sept. 14, said in court papers filed Wednesday. "Northwest's remaining cash is being rapidly depleted."
Unions expected the filing, as little progress has been made in negotiations with the airline, which seeks wage cuts ranging from 5% to nearly 30% from its union workers.
"It was a matter of when the hammer was going to drop," said Bobby De Pace, district president of the union that represents Northwest's ground workers. "The reality of it all gets closer. It's starting to hit home."
in all, the airline needs to cut $2.5 billion in costs to emerge from bankruptcy. The airline wants $1.4 billion to come from its union contracts.
"Our court motion gives union leaders and Northwest management time to reach the necessary agreements, before the court would be compelled to intervene and impose new contracts," said Northwest CEO Doug Steenland in a statement Wednesday.
The next step is for a judge in New York to set a hearing date for Northwest's request. In a note to employees, Steenland said the process to reject contracts often takes less than 60 days. Meanwhile, the move ratchets up pressure on the airline and the unions to reach agreements.
Under bankruptcy law, Northwest could ask for permission to implement lower wages in the short term.
The airline has told the flight attendants union that it doesn't plan to make that request. But De Pace expects it.
Indeed, some of the language in Northwest's filing hints at that kind of a move.
In those court papers, Northwest, publicly acknowledges that liquidation is a prospect for the Eagan, Minn.-based carrier, which is housed at Detroit Metro Airport in a new $1.2-billion terminal where it handles more than 60% of the airport's traffic.
If Northwest, the filing says, "does not quickly reduce its costs, it may soon reach a point where reorganization would be out of reach. At such time, Northwest would have to begin an orderly liquidation, and approximately 35,000 employees would lose their jobs."
That is the kind of language Northwest would need to use in a filing to request immediate wage cuts, said John Pottow, a professor specializing in bankruptcy law at the University of Michigan Law School.
De Pace said Northwest's comments about liquidation hold some weight.
"Most of the time, I would tell you this is just a threat," But this time, he said, "I would say there is some truth to that. They do need money. I just hope we can come to a consensual agreement before they even think about doing that."
Northwest's proposals to unions cut wages and benefits and give the airline permission to outsource thousands of jobs.
The largest proportion of concessions and wage cuts is before pilots, who are being asked to take an average pay cut of 28.4%, part of $362.8 million in annual concessions.
"We have been preparing for expedited negotiations. We continue to meet with NWA management and believe we can reach a negotiated settlement, but only if management doesn't overreach in negotiations," said Will Holman, spokesman for the Air Line Pilots Association.
Northwest also wants to cut about $80 million in medical costs for retirees. The airline wants current retirees under age 65 to pay half the cost of benefits. For pilots, it wants to eliminate medical coverage for retirees older than 65.
Typically, requests to reject contracts in bankruptcy lead to quicker agreements as the two sides try to settle before a judge has a chance to make a decision, Pottow said.
Northwest on Wednesday also detailed cuts for salaried workers that will take effect in December.
Northwest eliminated merit pay raises of 2.5% that were supposed to be given Oct. 1. Northwest plans a 5% salary cut for all employees until the airline emerges from bankruptcy and increasing medical premiums for salaried workers. The same cut has been proposed to unionized employees.
Northwest points to low-cost carriers as the model for the airline's new labor structure
The company says that this year the average compensation for Northwest's employees is 62% above the average paid to employees of low-cost carriers.
If Northwest gets all of the concessions it wants, the airline's cost to carry one passenger one mile would go from 4 cents to 2.6 cents.
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