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Northwest reports profit

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Northwest Airlines aircraft sit at the terminal at Detroit Metropolitan Airport Monday in Romulus, Michigan.
Bill Pugliano/Getty Images

Northwest CEO Doug Steenland didn't beat around the bush in an earnings conference call Tuesday. He immediately addressed the contrast between Northwest's rosy post-bankruptcy earnings report and the airline's recent rash of flight cancellations.

"Our second quarter financial results are evidence of the results of our restructuring," said Steenland. "Northwest is well positioned to generate sustained profitability and steady earnings growth for the long term.  However, our operational performance in June and July has been unacceptable."  

Steenland said the airline lost $25 million in the month of June because of cancelled flights. The airline has asserted the problems stem in part from pilot absenteeism, which hasn't sat well with the pilots.  

The union believes the airline makes it sound like pilots aren't showing up for work to vex the airline, and the pilots say that's not the case.  

"We're realizing the impact of new work rules that were negotiated with the pilots."

But Steenland denies the airline is putting all the blame on pilots. And in the conference call, he offered an unusually sympathetic acknowledgement of the upheaval wrought by the airline's bankruptcy.  

In Chapter 11, Northwest slashed pilots' take-home pay, increased their maximum hours of flying time, and chucked overtime pay. Steenland says those changes take some getting used to.

"We're realizing the impact of new work rules that were negotiated with the pilots," said Steenland. "Clearly one of the tasks, and one of our priorities here, is to devote the time and attention and the resources necessary to rebuild and repair some of the damage, and some of the impact that the kind of restructuring we went through created."

"That's certainly a change in tone," said pilots union spokesman Monty Montgomery.

He said Steenland's comments suggest some overture to pilots.

"In the past we've been told, 'Your reward for this is that you get to keep your jobs.'"

And Montgomery says there's been no change in substance from the airline, despite Steenland's softer tone.

The union's biggest gripe lately is that Northwest is wearing down pilots.  The union says 90 percent of the 3,300 pilots flying this month are hitting the contractual maximum of 90 hours of flying time.  

Montgomery says for every five hours of actual paid flying, pilots are actually working more like 12 hours.  And he's says all that flying is taking a toll.

Northwest CEO Doug Steenland suggested Tuesday that the airline will try to bring pilots closer to 84 hours of flying per month. The airline will trim the flight schedule and add more pilots to its rolls. Those measures aim to give pilots a break and reduce the potential for more cancellations.  

Cancellations already seem to have abated somewhat by Tuesday.  About 5 percent of Northwest's flights were cancelled Tuesday, down from about 8 percent since Friday.

Bill Hochmuth is a senior research analyst who follows the airline industry for Thrivent Asset Management in Minneapolis.  He says despite operational bumps, Northwest's earnings picture shows the airline is making a lot of smart moves and is generally where it wants to be.  

Hochmuth regards some of Northwest's operational problems as common for the industry.

"Every airline will have to deal with the fact that at the end of the month, their pilots will come up against contractual limits on the amount that they can fly, in terms of hours," said Hochmuth. "When there are issues that take extra time away from those pilots, it can certainly make for a difficult end-of-month period." 

Hochmuth says in June, every airline had to deal with significant weather disruptions which pushed pilots to their maximum flying allotments by month's end.  

In Hochmuth's view, Northwest's problems are worse, as new pilot work rules play out in the busy summer season. Problems are likely to abate with the start of the new month Wednesday.

A few one-time bankruptcy reorganization items gave the carrier a net profit of $2.15 billion.  But without those unusual items, experts say Northwest's bottom line is otherwise comparable to other carriers.