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Northwest pilots accept pay cuts; top execs get stock bonuses
by Jeff Horwich, Minnesota Public Radio
November 5, 2004

Pilots for Northwest Airlines have ratified a new contract, which cuts their pay by 15 percent over the next two years. The top executives at Northwest are being given stock bonuses totalling $3.7 million. (Photo courtesy of Northwest Airlines)

Pilots at Northwest Airlines have overwhelmingly agreed to a major cut in pay. Both pilots and management hope the deal marks the end of a downward slide that has bled Northwest of more than $2 billion since 2001. Pilots say they're ready for a major sacrifice if it means saving the airline. But the deal is just the first step in a painful process.

Eagan, Minn. — For the next two years, Northwest pilots will see their pay cut 15 percent. Along with pension, health care, and sick leave changes, the pilots will give back $250 million a year to help improve Northwest's bottom line. After two years are up, pilots have agreed to go back to the table if the airline's financial condition is still dire.

Pilots union chairman Mark McClain calls the deal a "proactive" and "positive step" to invest in the airline's future. But Northwest pilots will see their checks cut between $6,000 and $40,000 a year. A four-year DC-9 captain making $180,000 salary will take a $27,000 hit. That's a bitter investment to make.

"A 15-percent pay cut is a very real sacrifice on behalf of our members," McCalin says. "I have two kids in college, and I'm taking a 15-percent pay cut like everyone else. We're picking up a portion of our health care benefit. The dollars that we take home in our paycheck will be significantly reduced."

Pilots, in exchange get 3.5 million stock options, half of which they can cash in immediately. Pilots also get a profit-sharing plan that kicks in if and when Northwest's profit margin tops one percent.

Northwest management has agreed to pay cuts that range up to 23 percent, though the effect is blunted somewhat for top executives who recently got new stock options and a salary bump because of a management shuffle. CEO Doug Steenland's pay will fall at least $100,000 a year.

Reaching a deal was critical to allow Northwest to refinance nearly $1 billion of debt about to come due. The agreement takes effect when that refinancing does, perhaps as soon as December.

The restricted stock grant program is designed to focus our senior management on the long-term success of Northwest Airlines and to align the executives' interests with those of the company's shareowners. - Northwest spokesman Bill Mellon

A statement from Northwest says the airline appreciates the financial sacrifice. Spokeswoman Mary Stanik, reading from the statement, says Northwest continues to seek concessions from its other labor groups.

"In light of current economic and competitive issues facing Northwest, the airline's overall labor cost reduction goal of $950 million in annual savings remains unchanged. the long-term outlook for Northwest Airlines remains strong, assuming we are able to achieve competitive labor cost agreements," she said.

Piper Jaffray airline analyst Joel Denney says Continental, Delta, and American are all headed for new cost cuts to become more competitive. And tough industry conditions are unlikely to offer any reprieve.

"Most important is looking at this as 'step one.' This isn't the ultimate solution for Northwest Airlines. At this point the biggest issue is fuel. It's still at levels that are unsustainable for the airlines in the current revenue environment. The pressure from the low-fare carriers is still there and I don't think it's going to go away," according to Denney.

In announcing the vote, Northwest pilots union chairman Mark McClain sent a message to Northwest's groundworkers, mechanics, and flight attendants: Your turn.

"The other union groups are going to have to visit it before we revisit it. We've done our part; we helped clear that hurdle, to get some breathing room. We call it a bridge agreement because it is a bridge to a time when the other groups will have an opportunity to participate, and we fully expect them to do that," McClain said.

Ground workers say they are already modestly paid, both within the company and compared with other airlines. Mechanics, who could start contract talks before the end of the year, recently told MPR an agreement by the pilots has no bearing on their long-time position that concessions are inappropriate and unwanted.

But from the flight attendants union, the pilots' announcement brought a definite change in tone. The pilots, according to a spokesman, "clearly reached an agreement their members could support. We're looking forward to the day when we might do the same thing."

Flight attendants and management will start talking in the coming months.

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