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Northwest Airlines, pilots reach deal on wage concessions
by Jeff Horwich, Minnesota Public Radio
October 14, 2004

Northwest Airlines has announced a tentative agreement with its pilots union for wage concessions. The airline says it needs the givebacks to remain competitive. (Photo courtesy of Northwest Airlines)

Negotiators for Eagan-based Northwest Airlines and its pilots have reached a tentative deal to save the airline $300 million in annual labor costs. Industry watchers had come to see a deal with the pilots as critical to Northwest's financial health. Still, the potential savings are only the first step down the path to long-term profitability for the carrier.

St. Paul, Minn. — Negotiators finally reached agreement after an all-night bargaining session that followed nearly seven months of frequent talks. Will Holman is a spokesman for the Air Line Pilots Association.

"Late last night our negotiating committee reached a tentative agreement with management regarding a two-year pilot contract," said Will Holman, a spokesman for the Air Line Pilots Association. "It is a two-year agreement, $265 million in annual wage, benefit and other contractual conditions."

Holman spoke from Florida, where union leaders are gathered and reviewing the plan.

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The agreement would actually save Northwest $300 million per year, because it also includes $35 million in cuts for management employees. It is not known whether the plan includes any pilot job cuts, in addition to possible salary and schedule changes.

Holman says the union will not release any additional details about the plan until the union's governing committee votes on it -- possibly over the weekend. The full pilot membership must ultimately approve the deal.

In recent days, financial analysts had called attention to something of a deadline on the talks. Northwest currently faces the renegotiation of about $1 billion in debt. Some analysts predicted that if a deal with pilots was not closed by Oct. 24, the airline could eventually have more trouble borrowing money.

Final approval by pilot rank-and-file could still take weeks. The union's Holman says that is not a concern for them.

"It will take as long as it takes to properly communicate and inform our pilot groups about the tentative agreement. We are not working on a deadline," says Holman.

A statement from Northwest says the deal could be in effect as soon as December. The airline declined to comment on tape.

I think the pilots set the tone for the rest of the labor groups. This is really positive. I think it's terrific for the airline, as a matter of fact. - Airline analyst Helane Becker

The financial markets took the news well. Northwest's stock price rose almost 9 percent on Thursday. Wall Street airline analyst Helane Becker with The Benchmark Company says she fully expected a deal. She calls a $300 million annual savings "a huge step" for the airline.

"I think the company had said they would like to get $400 million from the pilots, so this doesn't get them what they wanted. But the pilots didn't want to give anything. So both sides negotiated an agreement that's probably livable," says Becker.

After plugging the savings into a profit model she uses to analyze Northwest, Becker says they bring the airline very close to breaking even next year. But breaking even is not enough. Northwest is still seeking hundreds of millions of dollars in annual cost cuts from its other labor groups -- mechanics, ground workers, and flight attendants. Becker believes the pilot deal should create momentum.

"I think the pilots set the tone for the rest of the labor groups. This is really positive. I think it's terrific for the airline, as a matter of fact," Becker says.

After taking a hard line for 18 months since Northwest proposed labor givebacks, the other unions are unlikely to change their tone overnight.

The ground workers union, Northwest's largest, is currently in contract talks with the airline. Officials were unavailable for comment, but have previously said they are already among the lower-paid in the industry and are not interested in a concessions. Flight attendants do no begin contract talks until 2005, but have similarly rejected the notion.

A negotiator for Northwest mechanics says regular contract talks could begin before the end of the year. But he says the union's previous position -- no givebacks -- is unaffected by the announcement of a deal with pilots.

More details about the deal will likely be filled in next week. Pilots will get some sort of profit-sharing or other agreement that allows them to benefit, if and when the airline returns to profitability.

The limited details now available also mention something called "revenue enhancements." According to analyst Helane Becker, that is probably code for increases in ticket prices. In other words, an understanding that with a deal now reached on the cost side, that Northwest will do all it can to bring in more revenue as well, and spare pilots more pain down the road.

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