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Error processing SSI fileNorthwest readies for bankruptcy
If airline is grounded by strike this weekend, carrier is prepared to quickly file for Chapter 11.
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As bargainers for Northwest Airlines Corp. and its mechanics union close in on a strike deadline tonight, the carrier has a bankruptcy team in place that could move quickly if a walkout shuts down the airline.
More than a year ago, Northwest quietly set up the team, including hiring a law firm specializing in bankruptcy, in case it couldn't win $1.1 billion in labor concessions and cut other costs, or in the event of a labor dispute that severely hindered the airline.
While Northwest insists it will fly a full schedule of flights if its 4,430 mechanics and aircraft cleaners go on strike after 12:01 a.m. Saturday, the biggest carrier at Detroit Metropolitan Airport would have few options left but bankruptcy protection if large numbers of other unionized Northwest employees honor the mechanics' picket lines.
Late Thursday, the Aircraft Mechanics Fraternal Association received a "last, best offer" from the carrier. "The offer reflects Northwest Airlines' consistent, extreme position and leaves us with little hope of reaching a deal before tomorrow," said Steve MacFarlane, AMFA's assistant national director.
The union did not give specifics about Northwest's offer, but the airline clearly is not backing away from its demand for $176 million in annual labor concessions. AMFA is expected to respond today.
Northwest hasn't indicated when it would file for bankruptcy if the airline can't fly because of a strike, but it's expected it would first try to get a judge's order to halt the work stoppage and, if that failed, then file for Chapter 11.
John D. Kasarda, professor of management at the University of North Carolina's Kenan-Flagler Business School, believes Northwest, which is losing $4 million a day, has no other alternative to bankruptcy if a strike occurs.
"The unions have to recognize the hemorrhage has to stop," said Kasarda, an expert on airline labor issues. "It looks to me like Northwest is heading to bankruptcy. Unfortunately, bankruptcy is one means to cut the costs."
Little progress is being reported at the bargaining table at the National Mediation Board in Washington, D.C. Mechanics at Detroit Metro say they're prepared to strike if an agreement isn't reached tonight.
Northwest is demanding $176 million in cutbacks from the AMFA as part of the carrier's total $1.1 billion in concessions sought from all of its 39,000 employees. Northwest has sustained $3.6 billion in operating losses since 2001.
The AMFA has offered to make concessions worth only about $100 million a year.
"From all indications, Northwest isn't talking about the key issues that have to be resolved to get us a deal," MacFarlane said earlier Thursday. "Economics and job security are a big deal. But Northwest essentially has told us our last offer was not enough, try again.
"But we're not going to negotiate with ourselves. They have taken such an extreme position, I just don't know how we're going to get a deal."
Northwest stock has risen this week as Wall Street has gained confidence the airline can weather a strike. Its stock closed up 48 cents to $5.48 Thursday, a 9.6 percent increase. But some analysts have said a Chapter 11 filing may be inevitable even if Northwest can lower its labor costs, currently the industry's highest.
United Airlines and US Airways already are in bankruptcy, and Delta Air Lines has said it is on the verge of filing for Chapter 11 protection.
Those airlines continue to fly, as would Northwest. Still, a bankruptcy filing could be tough on everyone, including the airline and its workers. Filing for Chapter 11 is extremely expensive, with the airline absorbing the costs. Workers are at the mercy of a bankruptcy judge and risk salary and benefit cuts, job losses and losing a big chunk of their pension benefits already earned to date.
MacFarlane of the mechanics union said right now, bankruptcy might be a welcome relief to the union.
"A bankruptcy judge could not possibly be as extreme and severe as Northwest is today," MacFarlane said. "Northwest sees an opportunity to break our union. How in the world could a bankruptcy judge completely gut our contract? In a dark way of looking at it, we actually think that a bankruptcy judge will provide some balance."
Northwest would not comment Thursday on the possibility of petitioning for bankruptcy in the event of a strike. But Northwest officials have brought up bankruptcy several times in the past two months.
"If the company is unsuccessful in achieving the necessary labor cost savings, suffers significant operational disruptions as a result of a strike or other work force actions ... the company would be forced to consider commencement of proceedings under Chapter 11 of the U.S. Bankruptcy code," the airline reported in a July filing with the U.S. Securities and Exchange Commission.
Doug Steenland, Northwest's president and CEO, told analysts and reporters July 26 the airline has warned union leaders bankruptcy was a possibility if the carrier couldn't cut labor costs.
Michael Boyd, president of the Boyd Group, an aviation consulting company in Evergreen, Colo., said bankruptcy isn't easy for airline employees.
"If I'm a labor union, I'd want to make sure this doesn't get into bankruptcy," Boyd said. "If Northwest is in Chapter 11, any lender offering money would insist on the airline dumping its pension plan with $3.6 billion in liability. Employees would be the losers."
Bloomberg News contributed to this report. You can reach Joel J. Smith at (313) 222-2556 or jsmith@detnews.com.
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