NWA job savings doubted
BY MARTIN J. MOYLAN
Pioneer Press
Despite steadily trimming its work force over the past several years, Northwest Airlines' expenditures on labor costs keep going up.
The airline has cut the equivalent of 14,391 full-time employees from 2000 to 2003, according to filings with the Securities and Exchange Commission. That's a 27 percent reduction. For the same period, Northwest's reports show that its spending on wages, salaries and benefits rose 6 percent.
How can that be?
As the struggling airline continues its push for nearly $1 billion in annual wage and other labor cost reductions, more employees are asking that question and wondering what the answer means for them.
Eagan-based Northwest would not put a figure on cost savings achieved with job cuts or otherwise comment on its employment and payroll trends.
In recent annual reports, though, Northwest indicates that salary, wage and benefit reductions flowing from job cuts since 2000 have been offset to an unspecified extent by several factors. They include retroactive wage and benefit payments tied to labor contract settlements, $27 million of employee severance costs following the Sept. 11, 2001, terrorist attacks, and higher average wage rates, as well as increased pension, group insurance and post-employment benefit expenses.
Last year, Northwest contributed a total of $413 million in cash and the stock of its regional carrier, Pinnacle Airlines, to its pension plans.
The airline's unions, which are being pressed hard to give up enormous concessions to keep Northwest viable, are especially perplexed by the seeming incongruity of big layoffs and increased payroll spending.
For instance, Northwest is asking its mechanics for nearly $200 million in annual wage and other givebacks. Based on company estimates of a full-time mechanic's cost at $85 to $95 an hour, including benefits, the airline could have saved about $700 million a year just with its elimination of some 3,700 mechanics' jobs, figures Jim Atkinson, president of Local 33 of the Aircraft Mechanics Fraternal Association.
"But what have we already sacrificed with all the layoffs, not to mention the job losses through attrition?'' said Atkinson. "Even at $60 an hour (for a mechanic), that's still over $460 million. That's way over the concessions they said they needed from our group."
If a value of just $35,000 is assumed for each job, Northwest's job cuts in the past three years would be worth about a half billion dollars on an annual basis.
Northwest's job cuts have been in line with its performance, said Blaylock & Partners airline analyst Ray Neidl. The airline's operating losses for the past three years amount to nearly $2 billion. From 2000 to 2003, its revenue fell 15.4 percent, while expenses dropped 8.4 percent.
"Its need to reduce unit costs (the cost of flying a passenger one mile) was not affected by cutting headcount,'' Neidl said. "The airline's unit cost has to come down and the only way to do that is by reducing salaries and benefits and raising productivity."
Layoffs take out the least-senior and therefore least-expensive employees, said Darryl Jenkins, executive director of the George Washington University Aviation Institute.
"You end up with older pilots (and other employees) making higher wages,'' he said. "Simply reducing your labor force does not reduce your unit costs . You have a very high concentration of higher-paid employees left. They will come and ask them for concessions, no doubt about that."
Northwest, he said, is at a disadvantage against United Airlines, American, US Airways and other national carriers that have not only cut jobs but also won wage and other labor-cost rollbacks.
"United, in Chapter 11, reduced its costs by 20 percent,'' said Jenkins. "That's a pretty big dip, and United will have a very big competitive advantage over Northwest in costs — and thus pricing."
Northwest's labor cost for every mile it flies a seat on its planes — an industry benchmark — was 3.8 cents in the third quarter that ended last September. That was the third-highest rate among the six big traditional network carriers and well above the marks of low-cost carriers such as Southwest Airlines, Northwest says.
Delta Air Lines came in at 4.5 cents and US Air, 4.2 cents. Among those with lower costs than Northwest were American at 3.7 cents; United and Continental, 3.4 cents; Southwest, 3 cents; America West, 2.2 cents; and JetBlue, 1.9 cents.
Northwest employees feel the jobs cuts already executed by Northwest represent a great sacrifice on their part toward helping turn the airline around.
"To a degree, they (layoffs) can be considered a concession — with the amount of people who have been cut from their jobs,'' said Jeff Gardner, vice president of the Professional Flight Attendants Association.
At this time, 1,260 flight attendants are on furlough. Another 1,415 are on a leave program of one kind or another. Gardner estimated most of the laid-off flight attendants made about $36,000 a year.
"Everything is flown with a minimum crew now," he said. "Other airlines fly a DC9-30 with three flight attendants. We fly with two the majority of the time. … We're understaffed and doing more with less."
Additionally, Northwest is flying with about 1,300 fewer pilots than it did in early 2001, according to the Northwest Airlines Air Line Pilots Association, the pilots' union. About 930 pilots have been laid off. Hundreds of others have retired.
Pilots start at about $35,000 annually. The most-senior pilots can make $225,000 or so a year.
Northwest is in contract talks with its pilots, seeking $2.7 billion in wage and other concessions over the next 6½ years. The company's proposal would reduce pilot pay by 17.5 percent from current rates, the union reports.
Any union response to Northwest's concessions pitch would take into consideration savings the airline achieved with job cuts, said Hal Myers, a Northwest pilot and chair of the union's Communications Committee.
"If we come up with an investment plan, that would be a factor,'' he said.
And if the pilots choose to give anything up to Northwest, they will expect something in return, Myers said.
"We don't have any intention of embarking on a one-way deal,'' he said.
Similarly, the International Association of Machinists, which represents Northwest ground workers, also is in contract talks with the airline. IAM members have lost about 4,100 jobs at Northwest since September 2001.
Asked by Northwest for wage and other rollbacks, the union countered with a proposal for wage hikes.
"Our people are working shorthanded,'' said IAM District 143 secretary-treasurer John Massetti. "We can't get days off or vacation. People are getting hurt, the longer hours they work and the more pressure they're under. It's not a fun place to be anymore."
You need to understand The 3 unions at AA understood the complex situation of unit cost. This was reduced, in turn allowed more employees to stay employed. NW on the other hand will continue to adjust if that means farming out all the Maintenance. Which by the way amfa has negotiated basically 100% farmouts. Every expert has repeatedly said the unit cost needs to come down to stay competitive.
BY MARTIN J. MOYLAN
Pioneer Press
Despite steadily trimming its work force over the past several years, Northwest Airlines' expenditures on labor costs keep going up.
The airline has cut the equivalent of 14,391 full-time employees from 2000 to 2003, according to filings with the Securities and Exchange Commission. That's a 27 percent reduction. For the same period, Northwest's reports show that its spending on wages, salaries and benefits rose 6 percent.
How can that be?
As the struggling airline continues its push for nearly $1 billion in annual wage and other labor cost reductions, more employees are asking that question and wondering what the answer means for them.
Eagan-based Northwest would not put a figure on cost savings achieved with job cuts or otherwise comment on its employment and payroll trends.
In recent annual reports, though, Northwest indicates that salary, wage and benefit reductions flowing from job cuts since 2000 have been offset to an unspecified extent by several factors. They include retroactive wage and benefit payments tied to labor contract settlements, $27 million of employee severance costs following the Sept. 11, 2001, terrorist attacks, and higher average wage rates, as well as increased pension, group insurance and post-employment benefit expenses.
Last year, Northwest contributed a total of $413 million in cash and the stock of its regional carrier, Pinnacle Airlines, to its pension plans.
The airline's unions, which are being pressed hard to give up enormous concessions to keep Northwest viable, are especially perplexed by the seeming incongruity of big layoffs and increased payroll spending.
For instance, Northwest is asking its mechanics for nearly $200 million in annual wage and other givebacks. Based on company estimates of a full-time mechanic's cost at $85 to $95 an hour, including benefits, the airline could have saved about $700 million a year just with its elimination of some 3,700 mechanics' jobs, figures Jim Atkinson, president of Local 33 of the Aircraft Mechanics Fraternal Association.
"But what have we already sacrificed with all the layoffs, not to mention the job losses through attrition?'' said Atkinson. "Even at $60 an hour (for a mechanic), that's still over $460 million. That's way over the concessions they said they needed from our group."
If a value of just $35,000 is assumed for each job, Northwest's job cuts in the past three years would be worth about a half billion dollars on an annual basis.
Northwest's job cuts have been in line with its performance, said Blaylock & Partners airline analyst Ray Neidl. The airline's operating losses for the past three years amount to nearly $2 billion. From 2000 to 2003, its revenue fell 15.4 percent, while expenses dropped 8.4 percent.
"Its need to reduce unit costs (the cost of flying a passenger one mile) was not affected by cutting headcount,'' Neidl said. "The airline's unit cost has to come down and the only way to do that is by reducing salaries and benefits and raising productivity."
Layoffs take out the least-senior and therefore least-expensive employees, said Darryl Jenkins, executive director of the George Washington University Aviation Institute.
"You end up with older pilots (and other employees) making higher wages,'' he said. "Simply reducing your labor force does not reduce your unit costs . You have a very high concentration of higher-paid employees left. They will come and ask them for concessions, no doubt about that."
Northwest, he said, is at a disadvantage against United Airlines, American, US Airways and other national carriers that have not only cut jobs but also won wage and other labor-cost rollbacks.
"United, in Chapter 11, reduced its costs by 20 percent,'' said Jenkins. "That's a pretty big dip, and United will have a very big competitive advantage over Northwest in costs — and thus pricing."
Northwest's labor cost for every mile it flies a seat on its planes — an industry benchmark — was 3.8 cents in the third quarter that ended last September. That was the third-highest rate among the six big traditional network carriers and well above the marks of low-cost carriers such as Southwest Airlines, Northwest says.
Delta Air Lines came in at 4.5 cents and US Air, 4.2 cents. Among those with lower costs than Northwest were American at 3.7 cents; United and Continental, 3.4 cents; Southwest, 3 cents; America West, 2.2 cents; and JetBlue, 1.9 cents.
Northwest employees feel the jobs cuts already executed by Northwest represent a great sacrifice on their part toward helping turn the airline around.
"To a degree, they (layoffs) can be considered a concession — with the amount of people who have been cut from their jobs,'' said Jeff Gardner, vice president of the Professional Flight Attendants Association.
At this time, 1,260 flight attendants are on furlough. Another 1,415 are on a leave program of one kind or another. Gardner estimated most of the laid-off flight attendants made about $36,000 a year.
"Everything is flown with a minimum crew now," he said. "Other airlines fly a DC9-30 with three flight attendants. We fly with two the majority of the time. … We're understaffed and doing more with less."
Additionally, Northwest is flying with about 1,300 fewer pilots than it did in early 2001, according to the Northwest Airlines Air Line Pilots Association, the pilots' union. About 930 pilots have been laid off. Hundreds of others have retired.
Pilots start at about $35,000 annually. The most-senior pilots can make $225,000 or so a year.
Northwest is in contract talks with its pilots, seeking $2.7 billion in wage and other concessions over the next 6½ years. The company's proposal would reduce pilot pay by 17.5 percent from current rates, the union reports.
Any union response to Northwest's concessions pitch would take into consideration savings the airline achieved with job cuts, said Hal Myers, a Northwest pilot and chair of the union's Communications Committee.
"If we come up with an investment plan, that would be a factor,'' he said.
And if the pilots choose to give anything up to Northwest, they will expect something in return, Myers said.
"We don't have any intention of embarking on a one-way deal,'' he said.
Similarly, the International Association of Machinists, which represents Northwest ground workers, also is in contract talks with the airline. IAM members have lost about 4,100 jobs at Northwest since September 2001.
Asked by Northwest for wage and other rollbacks, the union countered with a proposal for wage hikes.
"Our people are working shorthanded,'' said IAM District 143 secretary-treasurer John Massetti. "We can't get days off or vacation. People are getting hurt, the longer hours they work and the more pressure they're under. It's not a fun place to be anymore."
You need to understand The 3 unions at AA understood the complex situation of unit cost. This was reduced, in turn allowed more employees to stay employed. NW on the other hand will continue to adjust if that means farming out all the Maintenance. Which by the way amfa has negotiated basically 100% farmouts. Every expert has repeatedly said the unit cost needs to come down to stay competitive.
