Audio Airlines' improving outlook may fuel tougher battle over NWA cuts (story audio) Photos On the tarmac at MSP Resources Northwest Airlines Teamsters Local 2000, Northwest flight attendents' union Aircraft Mechanics Fraternal Association, Local 33 Your Voice Join the conversation with other MPR listeners in the News Forum.

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Airlines' improving outlook may fuel tougher battle over NWA cuts
by Jeff Horwich, Minnesota Public Radio
May 19, 2003

Northwest says it needs to save $950 million a year, including $870 million in cuts in jobs, wages and benefits from the four major unions, to keep pace with competitors and reverse heavy losses. (MPR File Photo)

There are signs of better months ahead for the airline industry, just at the time when Northwest says it needs painful sacrifices from workers. Northwest says it needs to save $950 million a year by cutting jobs, wages and benefits. The pilots have said they are willing to discuss new cuts. Other major unions have yet to respond formally, but have angrily questioned the need for concessions. Winning givebacks from workers may be all the more difficult with air travel headed into the strong summer season.

St. Paul, Minn. — Northwest has lost $1.6 billion since the start of 2001. Last month, after announcing the company's first quarter loss of $396 million, Northwest executives suggested the worst might be over.

Industry experts agree there are indications of an upturn in air travel. Jon Ash is president of Global Aviation Associates, a Washington DC-based airline consulting firm. He says concerns about SARS continue to hold back travel to Asia. But Ash sees an overall uptick beginning in June.

"We're starting to see advanced bookings look a little better, international traffic is starting to return, Iraq is largely behind us and off the front pages," Ash says. "Related to that is (that) fuel prices continue to drop. So there are a number of positives, if you will, on the horizon."

Northwest recently asked its biggest unions for contract changes that could cut as many as 3,700 jobs, along with pay and benefits. Airline stock analyst Ray Neidl of Blaylock & Partners says a better outlook will make those negotiations tougher.

"We're not expecting profitability," Neidl says. "But most people are now expecting that the carriers are not on the doorstep of bankruptcy, and that's going to make it that much more difficult for them to win the needed concessions from their employees at Northwest."

There are signs of growth at the airline. One union says Northwest will add 400 summer jobs for groundworkers. The carrier said this week it plans to add routes and workers in Milwaukee.

"Is everybody watching? Absolutely," says Mollie Reily, trustee of Teamsters Local 2000, which represents Northwest flight attendants. "Are we hoping for a booming summer season? Absolutely. Northwest is increasing their presence in Milwaukee. We see stuff like that and it generates questions. Are we going to bring back any of the aircraft that we parked and, if so, how many crew are coming back?"

Aircraft Mechanics Fraternal Association Local 33 President Jim Atkinson doesn't expect to talk about fresh cuts until the union's contract is up for renewal in 2005. Atkinson says mechanics have taken too many hits already.

"(There's) the medical insurance, which we pay now," Atkinson says. "They closed our Atlanta base, laid off thousands of employees. Outsourcing our work overseas. I mean, these are huge concessions to our group. So I don't see why they even came to us."

(The unions) need to get realistic and take a look at the earnings that Northwest is producing, or the lack thereof, and realize that traffic picking up does not solve that earnings problem. - Jon Ash

Northwest officials say even a strong jump in travel won't change the basic financial equation, or the need for cuts. They say fares for leisure tickets are still at 1998 levels. More expensive business travel remains weak, and those fares also haven't budged in three years.

And Northwest is under pressure to keep pace, as competitors like American Airlines and United Airlines reduce labor costs. This week, American announced new concessions from suppliers, creditors, and aircraft lessors that will save it $175 million a year.

Jon Ash of Global Aviation Associates says Northwest faces a changed industry. Customers can go online to find the lowest fares, and low-cost airlines like Southwest and AirTran are here to stay. AirTran Airways now flies four flights daily from Northwest's hub in the Twin Cities and is adding a fifth this summer.

Ash says unions are wrong if they think drastic cost cuts are no longer needed.

"They need to get realistic and take a look at the earnings that Northwest is producing, or the lack thereof, and realize that traffic picking up does not solve that earnings problem," Ash says.

Analyst Ray Neidl says Northwest may need to escalate the discussion to convince unions more cost cuts are needed. Bad as the currently proposed cuts may be for the unions, Northwest in Chapter 11 would likely be worse.

"At this point they're not threatening bankruptcy, but it may get to the point where, to get the unions to move, bankruptcy may have to be threatened and that may have a negative effect on the stock prices," Neidl says.

Neidl adds another note of caution. He says both sides should remember the seasonal summer boost is just that: seasonal. The way things have gone lately, there may be another difficult fall and winter around the corner.

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