Northwest to exit bankruptcy, but its workers are still unhappy

Northwest plane
Northwest Airlines plane.
MPR file photo

When Judge Allan Gropper approved Northwest's bankruptcy reorganization plan, he declared it a "resounding success."

Other observers are chiming in with kudos.

"Northwest is ready to emerge from bankruptcy as one very nasty airline competitor," says aviation consultant Mike Boyd.

Boyd says Northwest has done a good job of slimming down by slashing $1.4 billion in annual labor costs. And Boyd thinks the airline is well poised to aggressively pursue the right markets going forward.

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Declining employment
Northwest Airlines has cut employment across the system dramatically in the last few years. In Minnesota alone, 9,000 jobs have been cut.
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"They know the value of China, they know the value of the Deep South, they know the value of revenue flows," says Boyd. "And now that they have some cost issues in line between Minneapolis, Detroit, and to a lesser degree, Memphis, they are ready to just exploit the battlefield."

In a statement, Northwest CEO Doug Steenland said he's "pleased" about completing the restructuring. And he thanked the employees for their "hard work and sacrifices that helped Northwest attain its goal of repositioning the airline for long term success."

But the unions are not gushing with enthusiasm. Northwest has shed more than 8,000 jobs while in bankruptcy. Union officials complain that pay cuts in the range of 40 percent for some groups were deeper than the carrier needed to return to profitability.

In court over the past few days, the unions railed against the nearly $300 million in stock for executives laid out in the reorganization plan.

The plan gives Northwest Chief Executive Doug Steenland $26.6 million in stock and options once the company emerges. It also gives the outgoing chairman, Gary Wilson, $2 million as well as medical and dental insurance for life and up to $75,000 a year to keep an office.

"It's obvious in this case, once again, justice has not been served."

The unions argued Northwest used worker sacrifices to create bonuses for management.

Flight attendants union spokesman Andy Wisbacher says workers' concerns about awards to top managers were ignored in court.

"It's obvious in this case, once again, justice has not been served," says Wisbacher.

For Wisbacher, that's how the whole bankruptcy process has gone. Flight attendants voted down two concessionary contracts, and Northwest eventually imposed pay and benefit cuts on them. The rank and file are currently voting on a third negotiated deal.

But with the reorganization plan approved, the flight attendants and the other unions have little leverage left.

Northwest says workers will receive a total of $1.6 billion between now and 2010 in profit sharing and bankruptcy claims. But union officials have scoffed at that, saying their losses dwarf the payback. Wisbacher says it's up to the company to improve relations with workers.

"We've been asking Northwest to mend the relationship for several years now," Wisbacher says. "And it just appears every time they have the opportunity, they either don't recognize it, or they recognize it and they ignore it. It's just really up to the company."

Flight attendant
Northwest Airlines flight attendants are unhappy with the final bankruptcy plan, because airline executives will receive millions of dollars in compensation while union workers saw dramatic pay cuts.
MPR Photo/Jim Bickal

Northwest declined to comment on how it might improve relations with employees. But even if the workers have been unhappy, some passengers at the Twin Cities airport haven't noticed.

Kenric Scheevel lives in Rochester and flies Northwest about once a month. He says he's been pretty satisfied with service during Northwest's bankruptcy.

"Other than the occasional loss of luggage which everyone experiences, flights have been reasonably on time," says Scheevel. "I would say that over the course of the past year, all in all, service has been reasonably adequate."

Transportation expert Joe Schwieterman of DePaul University also thinks the bankruptcy process has unfolded relatively smoothly. He's impressed that a large majority of Northwest creditors approved the reorganization plan, which gives them at least two-thirds of what Northwest owes them back in stock.

Under the plan, Northwest's secured creditors will be paid in full. Most unsecured creditors are expected to be paid between 66 cents and 83 cents on the dollar in new shares of the reorganized company. Existing shares will be canceled, leaving shareholders with nothing.

Schwieterman thinks Northwest will emerge from chapter 11 on May 31 as a strong company. But he says the new Northwest is taking off into an economic headwind.

"Wall Street is once again down on airlines, and we've seen what fuel prices are doing to profits," says Schwieterman. "And there's no sign of that fuel beast leaving any time soon."

Schwieterman says if the airline industry as a whole could get some help with fuel prices, that could put airlines like Northwest in a better position to boost wages.

Northwest expects to be worth roughly $7 billion when it emerges, plus another $750 million when it sells new shares. Northwest creditors have bought $50 million of the $750 million in new shares. The rest will be bought by its underwriting group, which is led by JP Morgan Securities Inc.

It has projected 2007 revenue of $12.77 billion and profit of $794 million.

(Copyright 2007 by The Associated Press. All Rights Reserved.)