AP
In Bankruptcy, Changes Brew for Northwest
Monday January 16, 6:28 pm ET
By Joshua Freed, AP Business Writer
In Bankruptcy, Radical Changes Brewing for Northwest Airlines, Unions
MINNEAPOLIS (AP) -- For each of its big unions Northwest Airlines Corp. has a big idea, each one so odious to workers that they're threatening a strike that could put it out of business.
The bankrupt carrier is pressing to shift midsize jet flying to subsidiaries, angering pilots. And it wants to shift thousands of U.S. based, union-covered flight attendant jobs to foreign hires.
In a filing Friday in U.S. Bankruptcy Court, the airline explained some of proposals and listed areas where it has offered alternatives in light of union objections.
But the airline's overarching proposal is the idea for a new regional carrier, which Northwest has dubbed "NewCo" for now. "NewCo represents the cornerstone of our domestic renewal," said Tim Griffin, executive vice president for marketing and distribution, in a recent newsletter to employees. Northwest declined to provide anyone to discuss NewCo.
Northwest is trying to negotiate those changes into new contracts along with steep pay cuts and other givebacks by workers. If talks fail it will ask a bankruptcy court judge to allow it to reject its union contracts and impose new terms. A trial on the issue is set to begin Tuesday in New York.
Northwest laid out its regional airline subsidiary idea in the newsletter to employees, saying it hopes to launch the carrier next year with a fleet of new 70- to 100-seat jets. NewCo could have as many as 105 aircraft by 2010, and would fly under its own Federal Aviation Administration operating certificate.
Northwest President and Chief Executive Doug Steenland said the jets are the perfect size for 20 percent of Northwest markets, which include more small cities than any other carrier. "To operate at a profit, we must invest in these aircraft, and we must do so quickly," he wrote.
He also said that as a stand-alone carrier NewCo could borrow the money for its new jets, which might be tough for debt-laden Northwest. Northwest needs to save its money for new Airbus A330s and Boeing 787s for its international fleet, he wrote.
Northwest said most other airlines use outside carriers for flying the smaller jets. Northwest said its current pilot contract makes that too expensive. The contract reserves that flying for mainline pilots and bars shifting it to regional partners, who generally pay pilots less. Northwest has instead accomplished that flying with old DC-9 aircraft, some of which will soon reach mandatory retirement age, or multiple flights with smaller planes.
Northwest has sweetened the pitch by promising to staff NewCo with pilots it furloughed in the industry downturn that began in 2001.
UAL Corp.'s United Airlines used to have a limit on how many 70-seat aircraft it could use, but it got rid of the limit in bankruptcy court concessions from pilots, said airline consultant Robert Mann.
Pilots say NewCo looks just like something US Airways Group Inc. did during one of its own trips to bankruptcy court, when Northwest's current chief financial officer, Neal Cohen, held the same position at US Air.
In late 2002, it convinced pilots to allow a new division for handling regional jet flying. The new division, MidAtlantic Airways, employed laid-off pilots, just as Northwest promises with NewCo.
But they ended up making much less than they had at US Airways -- their top scale dropped from about $120,000 a year to $58,000 a year -- and its planes are now being sold off to Republic Airways Holding, Inc., a regional carrier that is continuing to fly them under the US Airways Express name.
Northwest pilots worry they'd suffer the same fate at NewCo.
"MidAtlantic was a disaster, and he (Cohen) was one of the principal architects," said Capt. Mark McClain, who runs the Northwest branch of the Air Line Pilots Association. "It was sold off at bargain-basement prices. There are lawsuits. Everybody got left holding an empty bag. When we see the same guy doing the same thing here, that causes tremendous concern."
Darryl Jenkins, who teaches airline management at Embry Riddle Aeronautical University in Daytona Beach, Fla., said the cutoff between mainline flying and regional flying is second only to pay in importance to pilots.
"The likelihood of them giving much on something like this right now is very slim," Jenkins said.
Still, Northwest's plan to buy new airplanes tells pilots, "'We want to grow,' and that gives pilots an incentive to work it out," said Doug Abbey, airline consultant for the Velocity Group in Washington.
Northwest is also proposing major changes for flight attendants.
It wants to use nonunion attendants for three-quarters of trans-Pacific and trans-Atlantic flights, and on all domestic flights on planes with 100 or fewer seats. In Friday's bankruptcy filing, the airline said it offered to move the ratio to a 50/50 mix of foreign and domestic flight attendants on international flights -- if the union agreed to wage reductions to make up the difference in cost.
The current contract allows Northwest to use locally hired, nonunion flight attendants on flights south and west of its Tokyo hub. The Professional Flight Attendants Association has said that amounts to about 500 flight attendants of the 8,950 Northwest said it employed as of October.
Northwest's original proposal goes well beyond what's allowed at other U.S. carriers, said Lori Bassani, spokeswoman for the Association of Professional Flight Attendants, which represents those workers at American Airlines.
She said American uses a limited number of overseas workers for flights entering the U.S. from South America. If Northwest were to rely on three-quarters of overseas workers for those flights it "could be devastating for their work force, and not only that, it could be devastating to the U.S.-based flight attendant work force, and our careers," Bassani said.
Northwest also had wanted to use a subsidiary for baggage handlers outside of its hubs, and use outside customer service agents at most of its stops. Both types of workers are now represented by the International Association of Machinists, which has said Northwest called the subsidiary idea "GroundCo."
In Friday's bankruptcy court filing, Northwest said it agreed to offer an alternative that did not include GroundCo, and that the union chose to continue negotiations on that basis.
AMR Corp.'s American Airlines did something similar to GroundCo when it formed AMR Services in the 1980s. It eventually grew to serve more than 200 airlines when it was put up for sale in 1998. Mann said it helped American avoid using union workers at smaller airports.
The IAM has scoffed at Northwest's proposal, which it says could cost it 5,000 of its 14,600 workers. On Saturday, without releasing details, union officials announced they would soon send their membership a concessionary contract for a vote.
Mann said that with United, U.S. Airways, Delta Air Lines Inc. and Northwest all in bankruptcy court in recent years, their ideas for pay cuts feed off each other.
"All these (lawyers) read each other's filings, and they say, `Oooh, that's a good one, I've got to go for that."
