August 29, 2005
The contract dispute between Northwest Airlines and its mechanics union has led to a strike. But the mechanics are only one relatively small piece of the labor cost savings the airline says it needs to stay out of bankruptcy. Northwest is currently negotiating with unions representing flight attendants and groundworkers. The company is also trying to get pilots back to the table for the largest cuts of all.
Eagan Minn. — While great energy and attention at Northwest have been tied up in its dispute with aircraft mechanics, the airline literally cannot afford to wait in talks with its other unions. Mechanics walked out over Northwest's proposal for saving $176 million a year -- that's just 16 percent of the overall annual savings the airline is seeking from labor groups. Only the pilots have given concessions so far, and Northwest is seeking to jump-start a new round of talks with them.
Northwest declined to comment on its continued quest for savings, except to say that it "continues to work with its employees to achieve consensual agreements."
That work may be about to intensify. Bobby DePace, the district president of the International Association of Machinists and Aerospace Workers, which represents baggage handlers, gate agents, and reservations employees.
"I have to believe that in the next few weeks, Northwest is going to try to speed things up here to get deals with ourselves and other unions on the property," according to DePace.
DePace believes Northwest wants to get new contracts before October 17, when a change to U.S. bankruptcy law takes effect, placing new requirements on companies that file for Chapter 11.
Many analysts say the course of these other contract negotiations may influence Northwest's decision on whether to file for bankruptcy in time to beat the deadline.
The first deal may well come from DePace's union, the IAM . While negotiators have not begun specifically discussing the $107 million dollars the airline wants to save each year from the union, DePace sees a deal emerging. He says pension benefits are crucial to his members, some of whom make less than $10 an hour. He believes Northwest would be willing to transfer their now-underfunded pensions to a system maintained by the international union, and pay into it on their behalf. In exchange, IAM members would agree to reductions in other benefits.
"The company wants two-week vacations, no lunches, they want to reduce our sick pay. Depending on how much we can come up with with that, that's what they would look for," he says.
It will take more than work rules for Northwest to reach its separate target of $143 million a year from flight attendants, who are back at the table this week.
One controversial proposal is something the Professional Flight Attendants Association has labeled "outsourcing." Union board member Peter Fiske says "significant" job losses would result from the airline's plan.
"They want to outsource virtually all of our international route system to people who are not in our seniority list, who are not U.S.-based flight attendants," according to Fiske.
Fiske says the airline also wants to contract out many small jet flights to regional partners like Pinnacle and Mesaba Airlines, who now fly only Northwest flights with less than 79 seats. The union says it can't accept these proposals, but Fiske does say offers are being exchanged and talks are moving.
There are no talks scheduled for Northwest's last and largest cost savings target: more than $322 million from pilots. This is on top of $265 million in pay cuts and work rule changes the pilots agreed to last year.
Pilots would be deeply affected by the airline's proposal to increase use of regional airlines. One Northwest proposal, which the Air Line Pilots Association calls "a wish list," would cut 1,200 jobs and leave pilots with an overall pay cut of 34 percent.
Pilots are not rushing to help Northwest meet an October 17 bankruptcy deadline. According to a union spokesman, "we're not in negotiations, we're not responding to management's unsolicited proposal, our contract is closed."
But financial analyst Ray Neidl with Calyon Securities expects the pilots will be ready to talk again if a Northwest bankruptcy filing is imminent.
"I think they do have the cooperation of the pilots. The pilots do not want to go into bankruptcy for fear of abandoning their underfunded pensions," Neidl says.
Even if Northwest gets what it wants from pilots and other unions, Neidl adds a cautionary note. With rising oil prices and other continued financial woes, the airline's overall cost-savings target of $1.1 billion may now be looking, as he puts it, "a little on the light side."