Fast Track to Recovery; Northwest's Bankruptcy Reorganization Remains on Schedule

Seven months after filing for court protection from its creditors, Northwest has rapidly slashed costs, trimmed its flight schedule, renegotiated leases and taken the first steps toward revamping its fleet.

May and June ultimately could prove to be the crucial months to the outcome of the Northwest bankruptcy.

In early May, the pilots finish voting on a controversial agreement that slashes wages but saves jobs. Flight attendants are expected to start voting on their deal in May, and equipment service employees could take a second vote on the deal they turned down in March.

If one or more of the unions rejects a contract offer, Northwest still could dramatically reduce its labor costs by asking the judge to allow management to impose new pay rates and work rules. But that aggressive strategy could lead to a legal battle with the unions over the right to strike. Even if the court blocks a threatened strike, worker discontent could produce customer service disruptions during the summer travel season.

Northwest pilots are voting through May 3 on their second round of concessions, including a 23.9 percent pay cut on top of the 15 percent cut they took in late 2004.

"I have no way of predicting how this vote is going to go," said Wade Blaufuss, a spokesman for the Northwest pilots union. While the pilots' negotiating committee endorsed the pact, the union's executive council was badly split and failed to make a recommendation. The pilot cuts in the contract proposal total $358 million.

If the pilots' deal is voted down, it appears that Northwest would ask U.S. Bankruptcy Judge Allan Gropper to allow the airline to abrogate the current contract and set pay rates and work rules.

"Realization of the $1.4 billion in labor cost savings is an indispensable first step in the restructuring process," Steenland told the Star Tribune last week. Northwest must meet its labor savings goal "either through ratification of negotiated collective bargaining agreements or the imposition of terms and conditions,'' Steenland said in the statement.

Ristow, who has served as the pilots' representative on Northwest's board of directors since late 1998, said he is certain that management will not back away from the labor savings targets set for each union.

"The company is not going to improve the contract" if it's rejected, Ristow said.

On March 7, Northwest's ramp workers turned down a contract offer that would have cut their pay 11.5 percent and eliminated many jobs. In response, Northwest asked the bankruptcy court to set a hearing to allow it to reject the current IAM contract, and the judge gave the parties a May 15 court date.

The flight attendants are expected to start voting on their tentative agreement in a few weeks, but they also are having an internal battle over which union should represent them.

The rank-and-file votes are tough to predict, because employees "are angry," Ristow said. "There is uncertainty, and trust [in management] is an issue."

Fleet overhaul

Northwest said it is "continuing to resize and reshape" the airline's fleet. Northwest recently reported that it has rejected or abandoned 51 mainline and regional planes, while reaching more-favorable lease or financing agreements on 140 other planes so far in its bankruptcy. The company is attempting to cut its fleet costs by $400 million a year.

Northwest's fleet size has dropped from 439 planes at the end of 2002 to 379 in December, a 13.7 percent reduction.

Northwest plans to phase out its old DC-9s and DC-10s over time, and Mesaba Airlines has said Northwest will remove the 69-seat Avros from its fleet this year.

Northwest also is moving forward with plans to add new planes to its routes. Airbus and Pratt & Whitney have agreed to provide Northwest with the financing it needs to acquire 14 A330s this year and next year for international flying.

The Dreamliner, Boeing's 787 that seats 221 passengers, is expected to enter Northwest's fleet in 2008 for international flying.

Baggaley said Northwest also negotiated provisions in the pilots' tentative agreement that allows it to create a subsidiary for flying 76-seat regional planes manufactured by either Bombardier or Embraer. Those companies also would like orders from Northwest for planes in the 90- to 100-seat range that would be flown by Northwest pilots and deployed on some routes now served by DC-9s, as well as on some Mesaba and Pinnacle routes.

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