A federal bankruptcy judge on Tuesday gave Northwest Airlines the authority to honor the employment contracts of senior executives in order to curb attrition as the company gets closer to exiting Chapter 11.
Before Tuesday's ruling, the severance packages of Northwest's senior executives, for example, would not have been protected once the company emerged from bankruptcy court protection. Now the executives will have a level of assurance against any contract changes made by new owners or board members, the company's lawyers said.
Once Northwest Airlines Corp. successfully submits a plan of reorganization to the court, the interest creditors and lenders hold could be converted into equity, meaningfully altering the ownership of the company.
Creditors committee lawyer Scott Hazan called the plan "downside protection in case something goes awry."
The program is effective at the time the company emerges from bankruptcy protection.
The committee of unsecured creditors supported the motion, which covers 41 managers in all, including Chief Executive Douglas Steenland and Chief Financial Officer Neal Cohen. Two of Northwest's major labor unions, the Air Line Pilots Association and the International Association of Machinists union, objected to the plan.
ALPA objected partially on the basis that the company would be free to increase the pay of executives while the same could not be said for workers governed by the collective bargaining agreements that include significant concessions reached through bankruptcy.
IAM said the plan should have been discussed as part of an overall reorganization plan instead.
The plan would include severance payments for certain executives, the majority of whom have been with the company through it bankruptcy process, which it entered on Sept. 14, 2005. It does not increase the pay of any executives.
As of a May regulatory filing, Steenland earned a base salary of $516,375, Cohen earned $382,500. Executive Vice Presidents J. Timothy Griffin and Philip Haan had salaries of $401,625, and Andrew Roberts, executive vice president of operations, earned $325,125.
Senior executives had taken pay cuts in late 2004 and late 2005.
The salary levels of 36 other executives included in the plan were not disclosed in court filings.
A Northwest lawyer, Bruce Zirinsky of Cadwalader, Wickersham & Taft, said the court's approval was necessary to prevent further attrition.
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