Northwest Executives To Make Millions From Bankruptcy

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Northwest And Delta Executives To Make Millions From Bankruptcies:

Over the last several years the top corporate executives at Northwest and Delta airlines negotiated retirement packages guaranteeing them millions in the event the companies declared bankruptcy and defaulted on their pension payments to employees.

Since 2000, Delta has lost $10 billion, slashed 23,000 jobs and cut pay for pilots, managers and other employees. Three years ago the company spent more than $44 million setting up trusts to protect executives' pension benefits from creditors in case of bankruptcy, saying the perk was needed to retain executives in hard times. Because transferring money to bankruptcy-proof trusts typically triggers big tax bills for the executives, Delta inflated the amounts to compensate for the extra taxes.

Retiring CEO Leo Mullin, who was paid $13 million in compensation in 2001, was given 22 years of instant seniority-although he worked for Delta for only five-and-half years-boosting his retirement package to $16 million. While incoming CEO Gerald Grinstein took a ceremonial pay reduction to bolster the company's demands for sweeping employee wage and pension cuts, behind the scenes other executives were cashing in on the benefits of their golden parachutes.

Former CEO Ronald Allen, who was forced out in 1997, continued to draw $500,000 a year from Delta for consulting services up until 2005, although neither the company nor Allen would say whether he ever provided any such services. Allen's exit package also included a $4.5 million cash severance payment and a $765,000-a-year pension that continues. He also got 10 years' worth of perks, such as a 2,090-square-foot Buckhead, Georgia office, a car and club memberships provided by Delta.

When Northwest Airlines CEO Richard Anderson left the company last year, he took his pension in a lump-sum payment of $3,028,700. Anderson's check covered three separate pensions he received from Northwest: the regular pension plan, his excess pension plan and his supplemental executive retirement plan, or SERP. Other top executives at Northwest, including current CEO Doug Steenland, also were guaranteed three pensions.

Union workers at Northwest have a pension plan based on years of service. For mechanics, custodians and cleaners-currently on strike against Northwest's demands for the elimination of more than half their jobs and the replacement of traditional guaranteed pensions with 401(k) plans-that amounts to $85 a month for every year they work. According to the Aircraft Mechanics Fraternal Association (AMFA), a mechanic who retires at 65, after 40 years at Northwest, will collect about $40,000 a year.

The company's 2005 proxy statement indicated that CEO Steenland will receive $947,417 a year if he retires at 65. Delta's "supplemental plan" adds multipliers to boost the pensions of the company's four top executives, crediting Steenland with 15 years of service for every five he works and paying him pension credits at twice the rate applied to regular salaried workers.

The company's four top executives-Steenland and executive vice presidents Tim Griffin, Phillip Haan and Andrew Roberts-will receive a total of $2,476,100 in annual pension benefits. This is enough to fund the pensions of 90 flight attendants with comparable years of service.

In addition to their pension benefits, Northwest's top five executives (the above-mentioned, plus Executive Vice President and General Counsel Barry Simon) have taken in $32,000,721 in compensation since 2002, not including other perks such as lifetime health-care coverage and travel benefits. The five also sold more than $1 million worth of stock in the months leading up to the bankruptcy announcement, as did big investors, like professional financier and former NWA Board of Directors member Al Checchi, who sold 1,650,240 shares from April 23 to May 3, raking in $8,439,884.

The New York Times reported Thursday that the timing of Northwest's bankruptcy filing allowed the company to protect its assets while executives reneged on a payment of $65 million into the employee pension fund, which is already underfunded by $3.8 billion. If Northwest skipped the payment before filing for bankruptcy, it would have been in violation of federal pension laws, and the government-run Pension Benefit Guaranty Corporation (PBGC) could have placed a lien on the airline's assets, giving itself a better chance of recovering some of the money.

Instead, the newspaper noted, "ince Northwest filed for bankruptcy first, then skipped the pension contribution, the government has no legal power to place a lien on its assets. It makes the pension guarantor-and the employees and retirees whose interests the government represents-into unsecured creditors for the $65 million. Unsecured creditors generally fare poorly in bankruptcy, recovering just pennies for every dollar they are owed."

If the PBGC takes over Northwest's pension plans pilots would suffer the loss of half or more of their pensions because the PBGC caps payments at $45,613 a year for plans canceled in 2005. Other unionized workers could also see drastic reductions.

Northwest also wants to freeze its current defined benefit pension plans and switch to defined contribution plans, such as 401(k)s, which are cheaper for employers but don't provide workers the guaranteed benefits of traditional pensions.

Delta's pension funds are in even worse shape. If the company defaults on its obligations it would set a record, surpassing the size of the United Airlines pension collapse earlier this year, and further staggering the overburdened pension guarantee board. According to board officials, Delta's pension plan has promised benefits worth $17.5 billion, but it only has $6.9 billion in assets. With its bankruptcy filing the company is expected to press for even more drastic cuts than it outlined in its corporate restructuring plan last year, when it announced plans to cut $5 billion and 7,000 jobs by next year.

The looting of airline workers' pension funds is but one example of how the assets of the major airlines have been squandered over the last several decades to enrich the airline bosses and big investors. It also underscores the widespread parasitism that pervades the boardrooms of corporate America.

The top personnel of the airline industry are chosen-and highly compensated-not because of their ability to manage complex organizations or to lay out a long-term corporate strategy. Instead a definite social type has risen to the top, whose only qualifications are its acuity for slashing tens of thousands of jobs and guaranteeing the quickest and largest payoffs to Wall Street.

Northwest's CEO Steenland began his career working for the Office of General Counsel for the secretary of the Department of Transportation when the Democratic administration of President Jimmy Carter was preparing the deregulation of the airline industry. He later joined a top law firm in Washington DC, which represented Pan American Air Lines during the merger frenzy that preceded the company's bankruptcy declaration, and later represented an investor group that organized the leveraged buyout of Northwest Airlines in 1989.

Steenland is particular adept at working the halls of Congress to lift regulations on pension funding and any other restrictions on profit-making, and at making use of the services of the labor bureaucracy to cut labor costs. "Since the biggest input is the wages, salaries, and benefits line, this puts a lot of attention on working with our employees in knowing what we need to do to survive in the long term," he commented.

Last year, in the midst of concession talks with the pilots union, Steenland hired Barry Simon as the company's executive vice president and general counsel. Simon was a top executive in the Seabury Group, a New York consulting firm whose "restructuring" clients have included Air Canada, US Airways, America West Airlines and Continental.

Simon earned his credentials as an executive at Continental and Eastern airlines, where he served under corporate raider and union-buster Frank Lorenzo. In 1983 Continental filed for bankruptcy-despite the airline's $60 million in cash reserves-in order to exploit a provision in the Bankruptcy Code allowing Lorenzo to abrogate his contracts with the unions. Simon directed Continental's legal strategy when it emerged from bankruptcy a second time in 1991.

Simon also played a leading role in the bankruptcy of Eastern Airlines, which stopped flying in 1991 following the bitter strike by unionized mechanics. At the time, Lorenzo and his team stripped the airline of valuable assets and sold them at fire-sale prices to Continental.

The 1980s and 1990s saw the emergence of junk-bond dealers and corporate raiders in the airline industry like Lorenzo and Carl Icahn (who bankrupted Trans World Airlines, among others, and who is now worth $5.8 billion-no. 55 on the list of the world's richest people).

Today, after nearly a quarter of a century of betrayals by the trade union bureaucracy (from the striking air traffic controllers in 1981 to the present scabbing organized by the airline unions against the striking Northwest mechanics), the corporate executives running the airlines feel even less restraint than their predecessors did when slashing workers' jobs, wages and benefits and looting company assets to enrich themselves.
 

robbedagain

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that is very pathetic. Something has got to be in order to stop the corporate greeders. but I guess that is only wishful thinking. For some reason I knew that one of the remaining unions on NWA should have said enough is enough we are striking.
 

wonderboy

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that is very pathetic. Something has got to be in order to stop the corporate greeders. but I guess that is only wishful thinking. For some reason I knew that one of the remaining unions on NWA should have said enough is enough we are striking.
Yes indeedy, been waiting for this wonderful article. Now that the pilots have agreed to a T/A, I wonder how long it will be until we hear about the "bonus" package for getting all the F/As and pilots to sign. It's coming.
 

Skymess

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Yes indeedy, been waiting for this wonderful article. Now that the pilots have agreed to a T/A, I wonder how long it will be until we hear about the "bonus" package for getting all the F/As and pilots to sign. It's coming.

Mgmt bonuses are a given. I'm waiting to see what was in the pilot package that made them so agreeable.
 

PhxMama

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finman, A prime example of what makes me ill and why the real mechanics of NW chose to strike. Theres always money for the leadership, (and let me use that term loosely) to put in their pockets. If managment was really concerned about their employees this money would have gone to saving jobs and looking for ways to increase revenue without destroying lives. Believe it or not, thats what real leadership does. They pat themselves on the back for saving 35,000 jobs but dont give a crap about how the slash in pay or jobs affects anyone. They get theirs and thats what counts. You see, I know how corp america works. How you can defend this? My advice to NW employees-go back to school, start your own company, look for employment elsewhere. I know its hard but start with babysteps. If you dont prepare yourself for the future they will contine to cry about how they cant make it without sacrifices. Not theirs but yours. If the pilots vote for this maybe its to help prepare for changing careers why they still have a paycheck. Maybe mechanics said enough is enough and opted to end the charade. One can only pray that they will all be happier not employed with this so called company. To all of them let me say you have to go thru Good Friday to get to Easter Sunday.
 
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I'm waiting to see what was in the pilot package that made them so agreeable.


First NW ALPA must send the TA to vote by the pilots. The pilots still can say NO and that will be that! Just because ALPA reached a TA with management, doesn't mean the pilots are going to like it. IMHO, I don't think the pilots are going to accept it. I smell a NO vote coming for Doug Stealand and company.

Remember the Continental Flight Attendants? The IAM reached a TA with management and it was sent out for vote by the membership. They said, NO on the first TA. The second one was passed because they got what they wanted.
 

wonderboy

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First NW ALPA must send the TA to vote by the pilots. The pilots still can say NO and that will be that! Just because ALPA reached a TA with management, doesn't mean the pilots are going to like it. IMHO, I don't think the pilots are going to accept it. I smell a NO vote coming for Doug Stealand and company.

Remember the Continental Flight Attendants? The IAM reached a TA with management and it was sent out for vote by the membership. They said, NO on the first TA. The second one was passed because they got what they wanted.
So.....the story keeps brewing. Interesting for now.
 

finman

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finman, A prime example of what makes me ill and why the real mechanics of NW chose to strike. Theres always money for the leadership, (and let me use that term loosely) to put in their pockets. If managment was really concerned about their employees this money would have gone to saving jobs and looking for ways to increase revenue without destroying lives.
The top five executives were paid $32M over period of time when NWA lost $4.1B. That is .75% (3/4 of 1%)of the total losses during that time. Explain to me how this drop in the bucket is material to the overall financial situation at NWA, and how that money could have been used to save jobs.

I don't have an opinion on how much these guys make, because it is immaterial, irrelevant and out of my control. We live in a free market, and obviously their services demand that sort of pay, otherwise they wouldn't be compensated the way they are. You can say that they are doing a horrible job because NWA is bankrupt, but yours is the opinion of an outsider with very little knowledge of the positions that they hold.
 

ThirdSeatHero

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If you run a company successfully, you get a bonus.

If you run a company into the ground you still get a bonus just to keep you from jumping ship.


You just gotta love aviation <_<
 

PhxMama

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ThirdSeatHero, At least someone gets my point. Why is incompetence rewarded? And fiman, Yes, I may be outsider but I dont think you need to be on the inside to understand this! If it was only a drop in the bucket why not pay them more bonuses, apparently its not affecting the bottom line. Can you say morale? Can you say leadership? Can you say were all in this together? Market value? How about a reality show for a new management team? I dont see how Donald Trump can do anything worse!
 

finman

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If it was only a drop in the bucket why not pay them more bonuses, apparently its not affecting the bottom line.
Because the BOD doesn't need to pay them more to keep the poeple in charge that they want in charge. The amount they make is a reflection of the percieved value that they bring to NWA, as determined by the BOD.

Would it make everyone feel a little more warm and fuzzy if they called it base compensation rather than bonuses? In the end, their total compensation is reflective of their value to the company, regardless of the financial state of the company. I think that for all of the crap these guys have to deal with in addition to the normal stresses of their job (having 30,000 people hate you for doing your job), they are justly compensated.
 

PhxMama

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But what about the value of other employees regardless of the companies financial state? I think the BOD is smoking the wacky weed! Perceived value? As you know I like the warm and fuzzy but do you really believe employees hate them for doing their job? Or are they hated because they have NOT been doing their job? I think our debate is about over when you think they are justly compensated and have so much "stress". I guess landing an aircraft in inclement weather is not really that stressful. finman, good luck with your company and I hope they continue to reward the faithful as you have shown a cult like faithfulness they should be thankful for. Mama
 

finman

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But what about the value of other employees regardless of the companies financial state? I think the BOD is smoking the wacky weed! Perceived value? As you know I like the warm and fuzzy but do you really believe employees hate them for doing their job? Or are they hated because they have NOT been doing their job? I think our debate is about over when you think they are justly compensated and have so much "stress". I guess landing an aircraft in inclement weather is not really that stressful. finman, good luck with your company and I hope they continue to reward the faithful as you have shown a cult like faithfulness they should be thankful for. Mama
Due to the wholly one-sided nature of the discussion surrounding executive compensation on this board, I'm left with the duty of providing the devils advocate viewpoint for the most part. Certainly, a discussion as to the amounts involved has merit, but it has to start from a point of mutual understanding as to the nature of the position and the market value of the services they provide. When the baseline for the discussion is that they have no worth and they are incompetent boobs, then there is no framework for a worthwile discussion. As such, my posts will likely seem overly in support of the current compensation, but that's because the discussion never developed that baseline of understanding that could lead to anything substantive. No offense to you; but there doesn't seem to be the willingness to accept anything from the other side of the argument, regardless of the validity or logic involved. That makes it difficult for a discussion to have any legs.
 

PhxMama

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Why are you the only one defending them? Why do you feel the need to play the devils advocate? I have seen good management receive good fair raises and bonues that were earned. I dont begrudge those that earn them because I realize what they have done in their lives to achieve their success. College degrees, MBAs, experience, not to mention guiding and leading their companies into realizing a profit. I firmly believe in the old saying "luck is the residue of design." I also dont believe in a socialist society. Can you agree that these monies are out of line in regard to performance? I cant imagine that if they were looking to replace any of the managment they couldnt find someone who couldnt look outside the box and bring to the table some new ideas. If they were truly looking for forward thinking indiviuals Im sure they would find valuable assets out there. Enough of this. I tried to end this on a friendly note wishing you the best but for now I will crawl away and let you continue to defend your position. I need to go buy a new versace for a benefit dinner anyway. It is probably going to be more rewarding than watching you fall on the sword for your leadership team.
 

Kev3188

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Oct 5, 2003
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Right in the middle.
I cant imagine that if they were looking to replace any of the managment they couldnt find someone who couldnt look outside the box and bring to the table some new ideas. If they were truly looking for forward thinking indiviuals Im sure they would find valuable assets out there.

Thinking outside the box is exactly what NW needs more of. There have some steps in the right direction, but for too long we've been reactive as opposed to proactive.


Finman--

I don't thnk most people would have a problem with executive compensation if it was result(s) driven (ie incentive laden). What gets me riled up is the hypocrisy in Steenland saying he's "earned his pay," while his track record proves otherwise.