Northwest, pilots reach tentative agreement
Negotiators for the airline and the pilots union reached the deal at 11 a.m., after more-or-less round-the-clock talks in New York. Northwest had little to say about the deal, except that it was pleased and that the annual contract savings add up to the $358 million it had sought.
That represents the last quarter of its total labor cost savings goal of $1.4 billion.
Pilots are also withholding any details about the contract until union leaders sign off and release it for members to review and vote on.
Northwest pilots union chairman Mark McClain issued a statement saying "the tentative agreement is painful but necessary" for successful restructuring at Northwest. McClain says he hopes pilots can look forwad to "emergence from bankruptcy as a proud and profitable airline."
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At Minneapolis-St. Paul International Airport, Northwest customers were relieved at the news. Darryl Thompson of Plymouth was waiting at the baggage claim for a passenger to arrive.
"I'm excited. You know, Northwest Airlines is a pretty big deal, as far as us and the economy of Minnesota, and Minneapolis, and abroad," said Thompson. "I think it's great that we have this hub here, and to keep that alive is important."
Jack Schnabel of Chanhassen was just returning on a Northwest flight.
"As a business traveler, I can feel comfortable that my business travel will go off successfully and I won't have to deal with any future hassles," said Schnabel.
For Northwest pilots about to see the proposed contract, the devil is in the details. The union is keeping those to itself for now.
Since November 2005, pilots have been flying under temporary pay cuts totaling 39 percent. Northwest had hoped to increase that to 43 percent, with deeper cuts possible for some pilots who found themselves flying smaller planes than before.
Pilots had hoped to fight some work rule changes, including 75 percent pay for sick days. They had also hoped for a promise of stock in the post-bankruptcy Northwest -- a proposal to which the airline initially responded coolly.
And many observers will be watching to see how the contract treats the flying of 70-seat jets, which Northwest hopes will become prominent in its domestic network.
Northwest had originally hoped to farm out the flying, either to a new subsidiary or outside companies. The pilots union said an acceptable framework for flying those planes emerged in negotiations, but shared few details of what it looks like.
While negotiations stretched out in the end with pilots and flight attendants, who reached a deal on Wednesday, University of Minnesota finance professor Rajesh Aggarwal says the progress has actually been impressively swift.
"They've only been, what, five and a half months in bankruptcy? And made a lot of progress already," said Aggarwal. "Certainly their bankruptcy seems to be proceeding at a much more rapid pace than did United."
Aggarwal gives credit to Judge Allan Gropper, who is overseeing Northwest's bankruptcy, for averting the potential disaster of a pilots' strike. Gropper acted three times to extend the time for negotiation, and then took no official action after a Wednesday night deadline passed -- leaving both sides under intense pressure to get a deal done.
Northwest legally could have imposed the pay cuts it wanted, but that could have provoked a strike that grounded the airline forever.
While it has reached tentative deals with its unions, Northwest is not able to shrink its costs just yet. The groundworkers union will complete voting on its contract proposal on Monday, and ratification will put it into effect.
Flight attendants will not complete voting until early April, and pilots will probably complete their vote soon after.
So far during bankruptcy, the airline has achieved savings by replacing striking mechanics, and through cuts to management employees -- including executive pay cuts in December 2005 of 30 to 40 percent.
When the latest tentative deals become permament contracts, Aggarwal says the airline will be far more competitive.
"If fuel costs were where they were over a year ago, Northwest -- with the current labor savings that we're anticipating -- they would be getting reasonably close to breaking even," said Aggarwal.
Bringing the company from breaking even to profitable is a task for the rest of the bankruptcy process, as Northwest works to restructure its routes, its fleet, and other aspects of its operations. It seems likely the bankruptcy process will last through at least the end of the year.