Northwest Airlines pilots have felt the sting of two double-digit pay cuts since 2004. Now they are poised to secure some financial benefits to partly compensate them for the concessions they made at the bargaining table.
Leaders of the pilots union have asked management to allow them to conduct an early sale of a portion of their $888 million unsecured claim against the bankrupt carrier.
"Basically, it is a claim to stock in the new Northwest when it emerges from bankruptcy," said Wade Blaufuss, a spokesman for the Northwest branch of the Air Line Pilots Association (ALPA).
While Northwest pilots and other unsecured creditors are expected to receive some stock in the restructured carrier when Northwest exits bankruptcy next year, the union told its members Tuesday night that its investment banker "has advised us that there is a favorable market for the sale of ALPA claims at present."
Recently, pilot leaders approved a formula for distributing proceeds from the ALPA claim. Half will be allocated to individual pilots on an equal basis, with the rest apportioned based on pilots' hourly pay rates and seniority levels.
It's unclear precisely what the union could expect to receive in selling part of its $888 million claim. A buyer most likely would want to take possession of the claim at a discount to its face value.
In the United Airlines bankruptcy, United projected "a rate of recovery for unsecured creditors in the range of four cents to eight cents on the dollar," though the actual amount ended up somewhat higher, the Northwest union told pilots in September.
Northwest has the exclusive right to file a plan of reorganization with the bankruptcy court by mid-January, according to Northwest spokesman Kurt Ebenhoch. He declined to comment Wednesday on whether Northwest will seek an extension to that deadline.
Northwest pilots need the company's permission to sell a portion of their claim before the reorganization plan is approved by the court. Their union's executive council has concluded that "the pilot group should take advantage of an early selling opportunity, if it becomes available," pilots were notified on Tuesday.
Buyers of the pilots' claim may be "merely speculating in bankruptcy claims" against Northwest or buying the claims as a means of acquiring the pilots' "right to receive shares of the reorganized" airline, the union said.
The pilots' contract also requires that when Northwest emerges from bankruptcy, it must pay a cash lump sum of $16.8 million to the union. That payment will be allocated using the same formula that ALPA will use in dividing the proceeds from the bankruptcy claim.
Northwest pilots agreed to a 15 percent pay cut in late 2004, and they ratified a concessionary contract earlier this year that included an additional 24 percent pay cut. The two rounds of concessionary changes are saving Northwest more than $600 million a year in pilot costs.
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The sale -- to an undisclosed buyer -- will pass money on to pilots who have taken two wage cuts in the last two years and agreed to work-rule changes to save Northwest money.
The ground workers union, in its contract, negotiated a $181-million claim and also seeks to sell part of it.
After granting $608 million in annual concessions and watching the airline industry improve, the pilots are seeking financial benefits and better work rules.
A confirmation hearing on Northwest's reorganization plan is set to begin May 16, and Northwest has said it expects to emerge from bankruptcy in June.