Northwest Airlines Inc. can avoid Chapter 11 bankruptcy if it gets $800 million more in union concessions and federal help in restructuring pension costs, Doug Steenland, Northwest president and CEO, told the Detroit Regional Chamber's annual policy conference Thursday.
When I asked Steenland what his deadline is to achieve those savings to avoid bankruptcy, he said, "I wouldn't use the word 'deadline.' Our goal is to get these things done by the end of the year."
Steenland painted a grim picture of the pressures facing larger traditional air carriers, from high fuel prices to fierce competition from low-cost carriers that now make up 30% of the U.S. market.
"All U.S. carriers must essentially be low-cost carriers," he said.
Steenland said that, despite $1.7 billion in nonlabor cost savings since 2001, Northwest has lost $3.3 billion altogether since that time, including $450 million in the first quarter of 2005.
The company recently extracted $300 million in wage and benefits savings from its pilots and salaried employees but still seeks $800 million more in concessions from its other labor unions. Earlier this week, United Airlines averted a strike by cutting a new 5-year deal with its mechanics that includes wage reductions.
Steenland also said Northwest needs the U.S. Congress to approve a bill to change how airlines pay their huge unfunded pension liabilities, allowing them to stretch payments over a longer period. The alternative, he suggested, would be the termination of pension funds similar to what occurred when United and US Airways filed for bankruptcy protection from creditors.
That would ultimately dump the costs of making good on these pension promises on the federal Pension Benefit Guaranty Corp., which he said already faces a $23-billion deficit, which would swell to $40 billion if it had to absorb Northwest's and other looming liabilities.
In addition to pushing for labor concessions, Northwest has also attacked costs on a variety of fronts large and small. It has eliminated pillows and free magazines on its flights and plans to do away with free pretzels. It is also experimenting with a $2 charge for curbside check-in.
When a questioner after his Mackinac speech suggested that Northwest was being chintzy by skimping on pillows and pretzels, Steenland replied, "You don't see conductors on trains walking down the aisles handing out pretzels."
The company is simply responding to a very challenging economic environment by cutting costs wherever possible. Many things, like handing out pretzels and magazines for free, are things that Northwest has been providing out of habit, not any evidence that customers care.
"These things are easily reversible if we find out we guessed wrong," he added. Despite its losses and mounting competitive pressures, Steenland said, Northwest has continued to invest aggressively in its business, building and expanding the new McNamara Terminal in Detroit and buying more than 200 new planes in the last four years.
"We're going to get this done," he told me, referring to the labor-saving negotiations and pension deal the company needs to avoid bankruptcy.
And to a woman who asked after his speech if she should proceed with her plans to fly on Northwest, despite recent buzz about possible strikes or bankruptcy, Steenland replied, "Buy your ticket. With complete confidence, I tell you we're going to be there."
