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An Interview with John Dasburg, Chief Executive Officer of Northwest Airlines
By Mark Zdechlik
January 11, 1999
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John Dasburg is the Chief Executive Officer of Northwest Airlines, one of the largest employers in Minnesota. 1998 was one of the most turbulent years in the history of the airline with a strike by pilots and acrimony surrounding labor negotiations with other labor unions.

Minnesota Public Radio's Mark Zdechlik recently talked with Dasburg.

Zdechlik: If you talk about Northwest Airlines in 1998, you talk about labor problems. Did you anticipate that 1998 would turn out the way it did given that the contracts were open?

Dasburg: No, I did not. I thought that with the relationships that we had developed throughout the early and mid '90s, things would go much smoother. I was really quite surprised that the contract was turned down by the I.A.M., and I was certainly very surprised that the pilots struck.

Zdechlik: What's your response to people who look at the situation from outside who are not aware of what it takes to run an airline and what it takes to run a union who say "How possibly could Northwest have let things happen this way. How possibly could people like John Dasburg allow the situation to just fall apart the way it did?"?

Dasburg: In business you do the best you can. So much of what we do is judgment. And so much of the decisions made by the union leaders are judgment. From time to time you don't have a meeting of the minds, and we saw that two years ago. American Airlines flight attendants struck. And within 12 months of that the pilots struck, and it took the Presidential Emergency Board to halt that strike. It only lasted a few minutes, but they were on strike, and that happens sometimes in this business.

It's a difficult business. It's a difficult industry for our employees to understand; not understand their jobs, but understand the economics of this business. The fact of the matter is that we work on some of the thinnest margins of any industry category in the world. And most of the costs are highly leveraged. What I mean by that is if there's a war in the Middle East, the difference between a billion-dollar profit and a billion-dollar loss could occur in four or five months.

The nature of this business is such that it's very easy for our people to misunderstand how close we operate on margin. And sometimes it's difficult for our unions to understand it. There was just a misunderstanding of what we could afford. We couldn't afford to pay what we were being asked to pay by the pilots, and they struck over it.

Zdechlik: I've spent a lot of time over the years talking with Northwest Airlines pilots and employees from all different parts of the company, and the main gripe they have with management seems to be rather basic. They feel like they've saved the airline. They feel like they should be rewarded. They see executives of the airline, including you, being handsomely rewarded for having turned around the airline so successfully earlier in the 1990s, and they want their fair share. Are they right?

Dasburg: Well, they're right, and they're wrong. They're right as to the fact that there's a pie, and it has to be shared fairly. And we certainly advocate doing so. We don't declare any dividends. Our earnings are plowed back in the business. They either go toward new aircraft or infrastructure or into salaries and wages and other costs. So there is no linkage. In other words, everything is turned back into the business.

We in management are charged with how much goes into aircraft and infrastructure and how much goes into labor rates and benefits. And so in that regard we try to do our best to have a fair allocation.

As to compensation of management: management has for the most part tracked the rank-and-file compensation. The big difference is in stock options. We receive stock, and if the Dow Jones goes from 4500 to 9500, we're going to earn a lot more than our salary, or our bonus, or any other program we would have. And since the Dow increased so dramatically in the 1990s, all of our stock increased significantly, and if we exercise those options and sell that stock, we receive a very large financial reward.

Those financial rewards are not coming out of Northwest Airlines directly. They're a vestige of the 1990 period when the company was private and the senior management group was given stock out of Al Checchi and Gary Wilson's stock holdings.

Zdechlik: How do you get that across to the average employee that there are these different groups at the airline, and that you did help save the airline when you agreed to pay cuts etc. It sounds to me what you're saying to them is, "What you have for that is a job at the airline."

Dasburg: No, we're not saying that at all. What we're saying is everyone sacrifices. Incidentally, I took my share of sacrifice, as did every other employee, from my own salary. Everyone sacrificed. And now the airline is doing well, and now we're going to share the profit of the airline. But we have to share them in such a way that we continue to have an airline. And it very well may be that employees want more than the airline can afford to give them and at the same time replace jetways and aircraft. And so that's the classic debate. But since we don't declare dividends, it's not in our interest to have a strike or poor labor relations.

We will do everything we can to generate good labor relations and avoid a strike. But what we are not going to do is incur wage rates and benefit programs that lead us to a position where we can't replace our capital stock which, incidentally, is not in the employees' best interest because in five to seven years there won't be an airline if we don't replace our capital stock.

If your question goes further and was, "How do you explain to the employees how it is that when the stock market goes up management earns more because the value of their stock options go up with the market?", that's very difficult. And I've concluded as a practical matter that I certainly have not found a way to adequately explain it. I don't think the media has found a way to adequately explain it. If anything the choice of the words the media use have a tendency, especially the print media, to mischaracterize stock options. But, nevertheless, I have for the moment at least abandoned trying to explain the stock market and stock options.

Zdechlik: Looking ahead to 1999: you enter 1999 having not wrapped up all the labor agreements of 1998. You have your two largest unions, the flight attendants and machinists, without new contracts. Both are threatening to shut down the airline if they don't get what they deserve. What do you think the prospects are this year for more work slowdowns and maybe even strikes?

Dasburg: We're back at negotiations with the I.A.M. leadership, and I would be, I am hopeful that we could take a contract back out to those people represented by the I.A.M., and hopefully we can get ratification this time. As to the I.B.T., which the teamsters represent our flight attendants, we have been in negotiations, but they're recessed for the month of January due to not having members of the National Mediation Board available, and we hope to be negotiating again in February. I would hope we could reach an agreement, but once again we're subject to constraints. There is only so much capital to go around. The airline's earning capacity is only so great. Since we don't declare dividends, we're pleased to have a fair allocation. But we're certainly not going to make a short-term decision that will imperil the airline long term. We just simply can't do that. And it isn't in the employees' best interest that we do that of course.

Zdechlik: Are you optimistic that you will be able to resolve these contracts without work interruptions?

Dasburg: Well, CEOs are optimistic by personality type, so I always start by believing that we can get things resolved. I certainly miscalibrated in the pilots' situation in 1998, but I certainly would hope that we go into 1999 that the people here would recognize that what we're trying to do is best for the airline which in turn is best for them, and that they have to some extent rely on our judgment. And certainly since they're represented by unions, they have to rely on their union leadership. And hopefully their union leadership and management can reach an agreement. But I cannot imperil the future of the airline.

Zdechlik: How personally have you dealt with having all these contract disputes all around? You're the guy with his picture [in] the airline magazine, and there's been a lot of finger-pointing and vilifying of you personally in this all. How do you deal with that?

Dasburg: I, for the most part, simply have to ignore it. I know that what I'm doing is in the best interest of this airline, and I believe that. If I didn't believe that, then I would have a problem because I would have to deal with a conscience and a reality that would perhaps be in conflict with each other. I guess we would call "cognitive dissonance." The fact of the matter is that I believe that not only me but the senior management team have the airline and its customers and its employees all balancing all of those interests, and we are taking the airline on the right course.

I think we took the airline on the right course in the 1990s including all the 1992-1993 period, and I believe we're still going down the right road. These alliances and taking a global focus so that Northwest Airlines will be one of the airlines that survives long term as the centerpiece of a global network is what we need to do, and I believe we certainly need great customer service, and we need our people to desire to provide that service, and at the same time we have to balance their financial interests and their desire for benefit packages against what it takes to run the airline. And we're going to do our best.

Zdechlik: Have you ever been in a position where you've had to be the front man subject to so much criticism as you have been as a CEO for Northwest Airlines?

Dasburg: No. I think having spoken with some of my colleagues in the industry, the airline industry is almost unique in the hostility that seems to exist between the labor leadership and the management. There is a constant wedge being driven. It's unfortunate, but in this industry for the most part it's simply the way it is. And if we look at the last 25, 30 years since deregulation, we can see that pre-deregulation the industry behaved that way, post-deregulation it behaved that way. It happens to be wrong. It is not good for the industry because it is not good for the customers.

Somewhere along the line we as a company, and we as an industry are going to have learn that the customer shouldn't have to pay the price for a labor negotiation. That, in point of fact, labor negotiation has to take place between management, the union representing employees, and we just simply can't put the customer in a position where the customer is just basically being used in the negotiation. But the industry hasn't learned that. We certainly haven't learned it here. I am preaching it, but so far to no effect.

Zdechlik: It occurs to me that Northwest has had a long reputation of poor labor relations. And up until recently John Dasburg and labor relations were good. After you negotiated concessions with these groups of workers, you were sort of a hero with the workers. You were in there rolling up your sleeves presumably telling them, "Here's what everybody needed to do to turn around." The airline did turn around. The economy turned around. The airline started making a lot of money. And now you are the villain even though the contracts being offered are not concessionary contracts right now. Is that disappointing to you?

Dasburg: Yes, that is very disappointing. In 1992-93, we did not negotiate new contracts. We negotiated concessions in an environment in which everyone was fearful. And so my role was viewed as protecting Northwest Airlines from basically external forces. That is the Mideast War and its impact on our revenue because of the fear of terrorism, the high increases in the cost of fuel, the American Airlines pricing initiative which had a devastating impact on Northwest Airlines, and on and on. And so I was viewed as basically a leader protecting Northwest Airlines from external forces. I had not, prior to this round of labor negotiations, negotiated new labor contracts. And so as a consequence in this environment. And now I was cast as a typical leader of an airline. That is, the enemy.

Clearly, it's the same John Dasburg today as it was in 1992 and 1993 and that it had been for 50 years prior to that. And so the fact of the matter is I'm cast in a different light now because I'm playing a different role now, and this is to negotiate contracts prospectively as opposed to those in order to save the airline. I'm very hopeful that when this is over and the contracts are in place, and we have four or five years of labor peace, that over that period of time we can focus on customer service, on the relationship between everyone in the airline, the management, employees, the labor unions, and find a new way of an airline negotiating wages and benefits. If we can't, then we'll be going through this cycle again in five or six years, and I think that's a shame. And I think long-term it will damage the industry, it will damage the unions, it will damage the employees, and the end result of that in a market society is an awful lot of people are going to hurt this industry for a very long period of time.

So my role in the next five years, in addition to the strategy of Northwest Airlines, would be to do as much as I can to see if we can't find a different way of having relationships inside an airline.

Zdechlik: How do you go about rebuilding morale and customer confidence?

Dasburg: From the summer of 1996 until the end of the pilots' strike, there was a deterioration in our customer service. Historically in this industry this has been the case. It's unfortunate that the customer is basically taken hostage. Once the labor contracts are reached, then the service levels go back, and we can see that at Northwest Airlines. We went from a deterioration of the service from 1996 until the end of the pilots' strike, and then in the months of October, November, and December, we have had very, very high levels of completion factor and on-time performance. So, the underlying operational structure of the airline has stayed in place.

In fact, even during those two years we actually have been improving on procedures. So as soon as the strike was over, the airline really exponentially bounced back to a high level of customer service. So that's possible. And recognizing that customer service - that is reliability - in the airline industry is the key to staying in business. We certainly intend to focus on that. And I think, it's interesting, if the airline operates well, that is if it operates reliably, everyone's job is easier. If the airline is unreliable, some of the early sense of that is experienced by the reservation agents. And the reservation agents become frayed because they're dealing with customers who are upset because they're dealing with cancellations or misconnects as a result of on-time performance. Clearly, luggage doesn't connect well then, and it has a rippling effect through the entire institution.

I've talked to employees all the time who say that one of the important things to their morale is once we get back to operating a reliable airline again, that their jobs become considerably easier. Boy, I can understand that just based on the complaint letters I read.

So I'd like to think as we wrap up the labor contracts and the airline goes back to running at very high levels of completion factor and on-time performance and the luggage, that in itself will certainly help morale. And maybe a crash in the stock market so none of us makes any money will be helpful also.

Zdechlik: From a financial standpoint, 1998 was a tough year for Northwest Airlines. You said that you lost $100 million in the second quarter because of the work slowdown. And I think $600 million because of the strike and events leading up to it. Your fourth quarter numbers are due out pretty soon and are expected to be a net loss. Are you offering any predictions on that or any thoughts from a financial standpoint on 1999?

Dasburg: That's against the law for us to speculate on our financial results so I won't do that.

Zdechlik: How about on the first three quarters of 1998?

Dasburg: The first quarter was very strong, and we were pleased with that. Demand was still strong, and while Asia was deteriorating rapidly, it hadn't deteriorated to the point where it's nearly as bad as it's become. Now we're in the end, we completed 1998, and we've begun 1999, we realize exactly how bad Asia became in the second and third and fourth quarter. We were surprised as were others with the rapid deterioration of Japan in particular. When we say Asia, we really mean Japan. And we were really quite surprised at how it deteriorated. And so we have to look ahead now, and Japan is not going to have a sustained, negative growth rate, and so at some point in time it'll bounce back. But between now and then, Northwest Airlines will suffer disproportionately because we are disproportionately represented, our business is disproportionately concentrated in Japan when we think of Asia.

Zdechlik: Of all the Minnesota companies, you probably have the most exposure in Asia and Japan. A couple of years ago you were talking about how you were starting to see effects of the Asian flu on your operations there. How do you see it right now?

Dasburg: We don't do a lot of economic forecasting ourselves. We average everyone else's economic forecasts. It looks like Japan has, in fact, not bottomed out, but it's conceivable that the average forecast is wrong. We have aircraft that are available to put in the marketplace should business strengthen again; especially the beach markets between Japan and Hawaii or Guam. We would like to see those markets bounce back. We hope they do, but we're not operating Northwest Airlines on the basis that they're going to bounce back in the next year. And if they do that'll be a pleasant surprise to us.

Zdechlik: How about the U.S. economy?

Dasburg: Again, we simply average the economic forecasts, and the forecasts indicate that the economy in the United States is going to have real growth next year in the 2 to 3 percent neighborhood. That's good growth for an airline. Airlines have a tendency to grow right along with the economy so we would expect a 3 percent growth in North America next year. We feel good about that.

Zdechlik: Why is the Continental-Northwest alliance a good deal? Do you expect that it will be allowed to go through despite objections from the Department of Justice?

Dasburg: First of all, we believe that the transaction with Continental is inside the law and should ultimately go through. The Justice Department is litigating, and that'll have to be heard, and then we'll let others decide whether we're right or wrong, but our advisers tell us that we're totally inside the law.

The reason it's important is there are three airlines that are almost double the size of either Northwest or Continental. In a business in which your customers demand that you have broad scope, and in a business in which there are economies of scale in your cost structure. We were trying, and Continental was trying to come up with a method or a transaction or a structure that would allow us to function for our customers as if we were as large as these three very large airlines. And what we came up with is an idea to have a very comprehensive alliance where for the most part to our customers we were one airline. This would require basically an almost merger of frequent flyer programs, common use of facilities, etc. And we agreed in negotiation with Continental and Continental with us to do so.

It so happens in this particular transaction that there was a very large block of Continental stock owned by a small group of investors, and we at Northwest believe that it would be a mistake to integrate our airlines as comprehensively as we had envisaged and at the same time allow that block to be out in the capital markets with who-knows-whom might be interested in it. So we bought up the block or are intending to buy up the block. We had no interest in merging the two airlines. We felt the history of merging airlines was a relatively ugly history and that we felt a voluntary alliance between two airlines was a more appropriate way to accomplish our objective. Other than acquiring this block of stock to prevent it from being available to competing airlines, for example, after we had fully integrated with Continental, we had decided to take it up. We put it in a voting trust which we believe provides protection for all parties, and we're hopeful that someday it's decided that that decision is correct.

In the meantime, we are going to go about our business of doing everything we can to integrate our two businesses.

Zdechlik: That's one of the things you're most occupied with in this office, is it not? Finding alliances with airlines?

Dasburg: That's a question and an assumption. My first priority is to bring together and to implement the KLM relationship, the Continental relationship and shortly the Alitalia relationship. If Northwest Airlines is going to survive well into the next century, we are going to have to be part of a major global network. KLM has reached the same conclusion. Continental has reached the same conclusion. Alitalia has reached the same conclusion. And so what we have to do is bring all of these airlines together now and actually implement this global network and these bilateral alliances. This is a lot of work. It's very complicated. There are a lot of interests each party has; after all, we are all independent airlines.

So once we pull ourselves together and implement that program, we have to bring into the group other airlines that are complementary. That is my principal concern. But it's both implementing what we have as well as searching for and bringing other airlines into the network.

Zdechlik: There was speculation that you'd had enough of the airline business and might be moving on. It was announced, however, that you'd be staying on. What is your future here?

Dasburg: Five or six years is my view of how long we have to accomplish certain objectives before the contracts become due again. It is that period of time in which we're going to have to deal with Railway Labor Act changes or what-have-you in order to not go through another cycle of labor negotiations as we've been going through now. As you and I discussed, that's very destructive.

As to me personally, I have always had an interest in business. I have never had an interest in any one particular business, and so I viewed myself as being a hotel person when I was in the hotel business and part of that a CPA and consultant to Peat, Marwick and now an airline executive.

But I'm getting along in the years now - I'll be 56 this month - and my current view is I'd like to see us turn Northwest Airlines into one of the great airlines in the world and be the heart of one of the great networks in the world into the next century and business is going to evolve into being totally global.

I'd also like to play a role in the next four or five years of finding a solution to the acrimonious-type, difficult labor relations that airlines have historically had and I've just experienced. Having not experienced it in '92 or '93 and having experienced it in 1998, it's clear to me that we must find a better way to build trust, a better way to run an airline, a better way to go forward and share the pie, but at the same time, not at the customers' expense or the anxiety of the people at Northwest.

Mark Zdechlik covers business issues for Minnesota Public Radio. You can reach him via email at