NWA, Flight Attendants Make a Deal

April 27, 2007
The agreement gave Northwest the $195 million in yearly savings it wanted, through a mix of pay cuts and changes to work rules.

MINNEAPOLIS -- Flight attendants at Northwest Airlines Corp. tentatively settled on pay cuts on Thursday, giving them a shot at a $182 million share of the airline's reorganization in exchange for the millions more they have given up.

The union said the bankruptcy claim could be worth $15,000 to $18,000 per flight attendant. That could serve as an incentive for the rank-and-file to approve the new contract. Flight attendants rejected tentative agreements twice last year - with 80 percent of the vote in June, and with 55 percent of the vote in July.

The union's Master Executive Council was meeting Thursday to decide whether to send the agreement out for a vote by the rank-and-file.

The agreement gave Northwest the $195 million in yearly savings it wanted, through a mix of pay cuts and changes to work rules. The airline's 9,000 flight attendants had already been working under the terms of the first rejected contract, which a judge allowed Northwest to impose. The cuts capped top flight attendant pay at about $35,400 a year, down from $44,190 before Northwest filed for bankruptcy protection, according to the union.

Other terms of the new agreement weren't disclosed, although the airline said it includes changes "that Northwest believes will improve the flight attendants' work environment."

"A concessionary agreement is never cause to celebrate and is never easy," said Jay Hong, President of the Northwest branch of the flight attendant's union, in a written statement. "But this tentative agreement gives our members an opportunity to vote on whether to take the $182 million bankruptcy claim and other improvements before the claim is lost when the airline exits bankruptcy."

Northwest used bankruptcy laws that allow it to reject union contracts to pressure its unions into accepting pay cuts. In exchange, it offered unsecured claims in its reorganization, which can be sold for cash or redeemed for shares in the restructured airline.

Last year, when pilots and ground workers made agreements, those claims were thought to be worth little. But as airline prospects have improved in recent months they have been selling for 80 cents on the dollar or more. Pilots and ground workers have cashed in 40 percent of their claims in that range, with proceeds distributed to individual workers.

The union has also lost several recent attempts to gain leverage. Judges blocked their effort to strike after Northwest imposed terms, saying the airline had acted within the law. Mediators refused to release the union from talks, and a bankruptcy judge rejected the union's request to shrink the size of Northwest's demands, or to award it a bankruptcy claim without a negotiated agreement.

The Association of Flight Attendants-CWA acknowledged that it wanted to make a deal now to preserve a chance at the $182 million claim for its workers. Northwest has said it expects to emerge from bankruptcy protection in June.

David Borer, the union's general counsel, said the union takes calls every day from investment bankers offering to buy some of the bankruptcy claim if flight attendants approve the deal. He said the union would be eligible to sell 40 percent of its claim right away.

Hong, the union head, pledged to "continue the battle to restore and improve our members' pay, benefits and working conditions regardless of the outcome of the vote. We will never rest until we have rebuilt what this bankruptcy has destroyed."

That could be tough to do. While it wasn't clear how long the new flight attendant contract would run, Northwest succeeded in keeping its other unions locked into their new contracts through the end of 2011.

That's unusually long, said Daniel Petree, Dean of the College of Business at Embry-Riddle Aeronautical University and an expert in airline labor.

"If Northwest emerges from bankruptcy, becomes profitable again, starts generating the kind of financial results that would warrant it, it's not unreasonable for the unions to go back in and ask for a better contract than they have now," he said.

Investors like certainty, and the long labor contracts would help provide that at Northwest, which has endured two strikes and numerous strike threats in the past decade.

"In general stockholders and managers and certainly debt holders like predictability," Petree said. "So the more risk, the more uncertainty they can remove from the scene for a longer period of time, the happier they're going to be."


On the Net:

Association of Flight Attendants: http://www.nwaafa.org

Northwest: http://www.nwa.com

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