When executives at Northwest Airlines Inc. talk of the millions in labor concessions the company needs to stay out of bankruptcy, Bob Rose remembers what happened in 1993.
That was the last time Rose, who represents 800 mechanics and aircraft cleaners based at Detroit Metro Airport, remembers hearing Northwest talk so seriously about bankruptcy. To Rose, it's also the year Northwest made a promise to its employees that -- at least 12 years later -- it has not kept.
That promise has soured an already contentious relationship with management and weighs on the minds of employees who will decide whether they should lower their wages and cut jobs to keep their employer out of bankruptcy.
In the early 1990s, the airline industry in many ways looked as it does today. The price of oil was rising. The United States entered the Gulf War. The economy was stuck in a recession. The airline industry lost $4 billion in 1990, despite setting records for passenger traffic, the Air Transport Association reports.
In 1993, Northwest obtained $886 million in concessions from its unions in return for 4.8 million shares of preferred stock, which the company said it would pay back in 10 years for $46.96 a share, or about $225 million.
At the time, there was a feeling the airline and the unions were working together to save the company, said Brad Bartholomew, a Ft. Worth, Texas-based airline labor consultant.
That feeling deteriorated with a pilots strike in 1998 and strike threats by flight attendants and mechanics.
The airline has reason to be frustrated, too, as it landed last in a J.D. Power customer-satisfaction survey this year. CEO Doug Steenland has said Northwest is trying to improve its relationship with employees through communication channels that include monthly newsletters.
In 2003, Northwest decided that it couldn't buy back the stock at the time, citing laws in Delaware, where Northwest is incorporated, that keep companies in financial turmoil from buying back stock. That decision prompted the unions that represented ground workers and flight attendants to sue Northwest in New York state courts.
Fast forward to 2005. Northwest is burning through cash to keep up with oil prices that are near record highs and fares near record lows. The airline isn't making money even as passenger traffic is on the way to all-time highs.
This time around, low-cost competition is forcing major carriers to permanently shed costs at a time when few major fare increases stick.
Mechanics and flight attendants have new union representation, and the airline is asking for $1.1 billion in concessions.
The stock issue still stings.
"It's salt in a gaping wound," said Rose, president of the Aircraft Mechanics Fraternal Association Local 5.
In March, a New York State Supreme Court judge ruled that Northwest breached its contracts with its unions when it decided to hold off on buying back the stock.
The company plans to follow through on the buyback, but the industry and the airline's finances have deteriorated since 2003, Steenland told shareholders and employees at Northwest's annual meeting last week.
"It remains an obligation of the company," he said.
Damages are expected to be determined at a trial.
If the Eagan, Minn.-based company were forced to pay the $270 million in damages it expects the unions to ask for, it would increase the risk the airline would file for Chapter 11, Northwest said in a regulatory filing.
Still, Rose said employees feel they were lied to. "And now they're back with their hand out again," he said.
While the airline has reached an agreement with its pilots that will save $300 million a year in a mix of concessions and cuts for salaried employees, Northwest needs another $800 million in labor concessions to reach its goal. It's a goal Steenland says the airline needs to achieve before the end of the year to stay out of bankruptcy.
The mechanics are the group closest to a strike. This week, the mechanics union asked the National Mediation Board to end talks with Northwest and begin a 30-day cooling-off period.
After that period, a strike could begin.
For many Northwest employees, the question of concessions makes them remember 1993.
"If they lived up to their obligations, then I think they'd have one hell of an easier time now," Rose said.
