Northwest union is heading for strike

0 Comments | Deseret News (Salt Lake City), Jul 6, 2005 | by Joshua Freed Associated Press

MINNEAPOLIS -- Mechanics at Northwest Airlines Corp. said they asked to be released from negotiations on Tuesday after the nation's fourth-largest carrier rejected their pay-cut offer.

Release from the talks would start a 30-day clock running toward a strike.

Northwest shares sank further on Tuesday, as chief executive Doug Steenland said the airline must get labor concessions by the end of 2005 or face the possibility of bankruptcy.

But Steenland also said a pay cut offer by mechanics was inadequate, and flight attendants have repeated their opposition to cuts. Northwest shares sank 24 cents, or 5.4 percent, to close at $4.19 on the Nasdaq Stock Market, a new 52-week low.

Northwest has said it wants $176 million worth of concessions from mechanics. Mechanics said they've offered $143.5 million -- but Northwest says it really amounts to only $87 million, because mechanics count money saved from earlier layoffs.

"They just continue to refuse to move off the $176 million number," said Jeff Mathews, contract coordinator for the Aircraft Mechanics Fraternal Association. "We're being asked to share too much of that burden. And they refuse to give us any credit whatsoever for our already laid-off members."

Talks between mechanics and the airline broke off after just an hour and 45 minutes on Tuesday, Mathews said. He said he wasn't sure if talks scheduled for the rest of the week would take place.

A strike vote by mechanics will end on July 19. The airline has vowed to keep flying if mechanics strike.

Before the mechanics made their offer, the mediator had denied Northwest's request to be released from talks. But now both sides are asking.

"If we are unsuccessful in realizing labor cost restructuring, we are going to have to consider the Chapter 11 bankruptcy option," Steenland said Tuesday in a speech to Minneapolis business leaders.

Steenland's comment was similar to a statement made by Northwest in a filing with the Securities and Exchange Commission on Friday afternoon.

Northwest has been seeking $1.1 billion in labor cost savings from its workers, and on Tuesday Steenland repeated that Northwest wants those savings by the end of 2005. In response to a follow-up question, Steenland declined to say whether that meant Northwest would file for bankruptcy after the end of the year.

Northwest pilots have already taken a pay cut.

Flight attendants, meanwhile, are offering no concessions at all. "The flight attendants are not in a position where they're going to give anything at this point," Professional Flight Attendants Association vice president Jeff Gardner said after listening to Steenland's speech.

In the SEC filing on Friday, Northwest said its "financial viability primarily depends on" labor cost cuts and a change in pension laws that would allow it to spread out payments to its underfunded pension. Northwest said current pension law would require it to pay $800 million in 2006 and $1.7 billion in 2007 to its pension.

"Failure to obtain pension funding relief will also cause the company to consider Chapter 11," it wrote in the filing.

But Prudential analyst Bob McAdoo said in a note to investors Tuesday that strike talk is common in the airline industry, and that he believes Northwest will get labor cuts. "We would be surprised if there is any resolution to the labor issues in the very near future," he wrote.

"It is unlikely Northwest will seek bankruptcy protection anytime in the near future," he wrote. "Its labor negotiations, whether successful or not, will likely drag on well into 2006. Its troublesome catch-up pension payments do not occur until 2006." And even if it fails on both pension reform and labor costs, more cheaper oil would probably be enough to keep Northwest out of Chapter 11, he wrote.

Oil prices have surged above $60 a barrel recently. Steenland said Northwest's costs increase by $50 million a year for every dollar increase in a barrel of oil.

Northwest is looking for other ways to make more money, Steenland said. It recently stopped giving away even pretzels on domestic flights in favor of a bag of trail mix that it sells. Steenland said it is looking for other ways to make money, too, including offering new luggage service for a fee. He gave no details on what that service might be.