Northwest: Progress with unions

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MINNEAPOLIS (AP) – Taking it one union at a time, Northwest Airlines Corp. has been nailing down the labor concessions it needs to cut costs and emerge from bankruptcy. But big challenges, including soaring fuel costs, still dog the nation’s fourth-largest carrier.

Northwest and its union representing baggage handlers and ramp workers reached a tentative agreement early Friday, hours before a bankruptcy judge in New York was to consider whether to allow Northwest to throw out the union contract and impose its own terms. Judge Allan Gropper postponed his decision until next month, pending ratification of the deal.

If baggage handlers accept the deal, Northwest stands to be that much closer to a $1.4 billion target for labor concessions. Before heading into bankruptcy, Northwest’s labor costs were among the highest in the industry.

Details of the tentative agreement were being prepared for union membership and were not immediately available.

“They now have the potential to be the lowest cost-labor carrier,” Robert Mann, airline consultant at R.W. Mann & Co. in Port Washington, N.Y., said of the labor negotiations.

Mann and other analysts said the labor agreements are important steps as Northwest tries to climb out of bankruptcy. Now, Mann said, the carrier has to upgrade its fleet to minimize older fuel-guzzling aircraft like DC-9s and DC-10s. The carrier is also renegotiating more favorable leases in bankruptcy.

“Their next step beyond that is to decide how much … (of) what has been pruned from the network needs to be replaced, through partner flying,” he said, pointing to use of Pinnacle and Mesaba airlines, and Northwest’s plan to create its own regional subsidiary.

“It’s a rightsizing and then kind of an addback through the use of partners,” Mann said.

Oil has been running around $70 a barrel, and every dollar increase raises Northwest’s fuel costs by $43 million a year, the airline said in its first quarter earnings report. The high fuel costs create “great uncertainty” around that element of the airline’s restructuring plan, Chief Financial Officer Neal Cohen said in a statement last week.

In its earnings report, Northwest said it spent $1.87 per gallon on fuel (not counting taxes) in the first quarter, up almost 36 percent from the same period last year.

Mann projected Northwest emerging from bankruptcy as early as next spring.

Michael Boyd, an airline consultant and president of the Boyd Group in Evergreen, Colo., said Northwest has a clear plan of where it wants to be, and what it needs to do to come out of bankruptcy.

“Success is not just getting pay cuts, success is getting more revenue through the door. Northwest is highly focused on that,” he said. “I think they’ll be out of bankruptcy easily within a year, and going forward, they are going to be a ferocious competitor.”

The IAM leadership has recommended ratification of the tentative deal, but only because the alternative was worse, said Bobby De Pace, president of District 143 of the International Association of Machinists and Aerospace Workers.

“The people are voting for their jobs, they aren’t voting for any improvements or anything, they’re voting to keep their jobs,” he said. “It’s just a real sad day.”

Northwest filed for bankruptcy in September. Bankruptcy law allows companies to reject their union contracts with a judge’s permission – a threat that prompted deals with other unions. Pilots approved a new contract earlier this month, and flight attendants are voting through June 6 on pay cuts.


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