Setting the stage for what could be a decisive day today in bankruptcy court, Northwest Airlines on Tuesday said it lost more than $1.3 billion in the final three months of 2005 while its pilots voted to give their union leaders authority to call a strike against the airline.
Eagan, Minn.-based Northwest and its pilot and flight attendant unions still had not bargained new contracts late Tuesday, though they're under a deadline to do so by the end of business today.
If they don't negotiate settlements on their own, New York Bankruptcy Judge Allan Gropper could reject the existing contracts. That would position Northwest, under Gropper's oversight, to impose new wages and other terms on the unions.
But might the judge extend the deadline for a third time? He could. Gropper has a tremendous amount of flexibility in deciding how he proceeds, said George Singer, a bankruptcy attorney with Lindquist & Vennum.
What he does will largely depend on what the airline and unions tell him about the progress they have made and if some additional time could help get deals done.
"The judge definitely does not want to be in the position of forcing different contractual terms on the parties if at all possible, although he is certainly prepared to rule and do so if need be," said Singer.
If all parties agree they want more time, "I believe it to be highly unlikely that the judge would issue a ruling," he added.
On Tuesday, Northwest pilots picketed at Minneapolis-St. Paul International Airport to show their frustration with the airline.
"Northwest management continues to overreach and is putting NWA's future in jeopardy," union leader Mark McClain said in a prepared statement. "Northwest pilots will strike if management's onerous and unreasonable proposals are imposed on the pilot group."
The union said more than 90 percent of some 4,850 eligible pilots took part in the strike vote, with 93 percent giving the OK.
Talks seem to be going better between Northwest and the flight attendants.
"On many issues, we have found common ground," said union spokeswoman Karen Schultz. "But we have a gulf between us on job security, particularly if the airline is sold or merged."
Northwest has been trying to extract big-time givebacks from its unions for about three years as it racked up billions of dollars in losses.
The airline must reach deals with its pilots and flight attendants to cap its drive to cut its annual labor costs by $1.4 billion.
In its October 2005 court filing to overturn union contracts, Northwest said it was seeking a 28 percent base pay reduction for pilots and 17.5 percent cut for flight attendants. It's unclear what Northwest is asking for now.
Pilots now are being hit with an interim 24 percent pay cut. That's on top of a previous 15 percent permanent cut.
Northwest imposed a contract that included about a 25 percent pay cut on its mechanics last year. Currently, baggage handlers, reservation agents and other ground workers are voting on a proposed deal that includes five to 12.5 percent pay cuts.
The $1.31 billion quarterly loss by Northwest includes bankruptcy reorganization costs and other unusual items. Without them, the airline would have had a net loss of $387 million compared with a loss of $373 million in the fourth quarter of 2004.
Its quarterly operating loss was $261 million, down from $424 million a year before.
For the year, Northwest's net loss, excluding unusual items, was $1.4 billion; its operating loss $919 million. Northwest said it has rejected leases on 51 mainline and regional aircraft and negotiated more favorable leases on 140 planes.
The airline had $1.3 billion in unrestricted cash and short-term investments at the end of 2005. Operating revenue in the fourth quarter increased by 5.9 percent to $2.9 billion, boosted by a $113 million improvement in passenger and regional revenue.
Passenger revenue per available seat mile increased by 11.5 percent. That reflected the effect of the airline putting fewer seats in the air.
Operating expenses in the quarter increased 5.8 percent to $3.2 billion, excluding unusual items. Salaries, wages and benefits fell by $155 million. That was mostly because of a 75 percent reduction in the ranks of Northwest's mechanics after they struck the carrier in August.
But Northwest's maintenance expenses rose by $72 million as it increased its use of third-party maintenance providers to do work that had previously been kept in-house.
During the fourth quarter, fuel averaged $1.98 per gallon, excluding taxes, up 42.4 percent versus the fourth quarter of last year.
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