Northwest, pilots reach agreement But other unions still must OK concessions

July 07, 1993|By New York Times News Service

Northwest Airlines and its pilots union said yesterday that they had agreed to grant each other broad and deep concessions as part of an effort to keep the carrier from filing for bankruptcy protection.

But none of the conditions will take effect unless the pact is also approved by two other Northwest unions: the Machinists and Teamsters.

The Teamsters appeared more receptive to the pilots' deal than did the Machinists yesterday. Representatives of the Machinists said that while they had yet to review the agreement, they had no plans to ask their members to vote again on a deal similar to one that union leaders had accepted but that members had recently voted down.

Nevertheless, the agreement between Northwest and its pilots is a milestone in a yearlong effort by the airline to restructure its finances.

The concessions by the pilots, worth $365 million to Northwest over three years, also could set an important pattern for labor-management relations for the rest of the embattled airline industry. Air carriers are struggling to control their stubbornly high costs, particularly wages and benefits.

"It is historic," Joseph R. Blasi, a professor of labor and management relations at Rutgers University, said of the accord.

For consumers whose primary interest in the airline industry is seeing air fares drop, the Northwest announcement probably means that a repeat of last summer's fare war is less likely. Although airline pricing is less predictable than the weather, the fact that Minneapolis-based Northwest does not plan to file for bankruptcy will help stabilize pricing in an industry that is eager to avoid deep discounting and to recapture profitability.

Carriers operating under bankruptcy protection are more likely than healthy carriers to cut prices on their seats to raise cash quickly.

For Northwest's executives and employees, the pact with the pilots clears away what had been the most daunting obstacle to achieving a financial restructuring outside of bankruptcy court. After a $3.65 billion leveraged buyout in 1989 by an investor group led by Alfred A. Checchi and Gary L. Wilson, Northwest was saddled with a debt payment schedule that it became apparent the airline would not be able to meet. Debt payments were to rise to $1.09 billion next year, from $170 million this year.

After two weeks of intense negotiations, the airline, which is the nation's fourth largest, and its pilots worked out terms that reaffirm many details of the earlier Machinists' agreement, including a 30 percent equity stake in the carrier for the unions, three seats on the board and concessions of $365 million from the pilots.

New wrinkles

There are some new wrinkles, however:

* Employees will be able to convert their preferred convertible stock, worth 30 percent, to common stock worth up to 37.5 percent of the company's stock.

* The pilots' concessions of $365 million over three years would be achieved through $305 million in wage concessions and the remainder in work rule changes. Northwest pilots, who earn $125,000 a year on average, will see their annual pay cut by roughly $19,375.

* Preferred shareholders have agreed to annual reductions in dividends of $36 million a year over nine years, resulting in total cost reductions of $1.2 billion for the airline.

Before the Northwest accord, the largest airline-concession agreement cobbled together outside of bankruptcy protection was done by Eastern Air Lines, which was liquidated in 1991. In 1983, the Machinists and other unions at Eastern traded 18 percent pay reductions, 5 percent productivity improvements and changes in work rules for 25 percent of the airline, 3 million shares of preferred stock and four board seats.

With an agreement from Northwest's pilots in hand, attention now shifts to leaders and members of Northwest's two largest unions, the Machinists and the Teamsters, who must decide whether to put the agreement to a vote.

Negotiating separately from the pilots and three other small unions, they had worked out their own agreement several weeks ago that would have produced the concessions Northwest needed. But that deal fell apart when the Machinists' rank and file voted down the agreement, largely out of protest over the notion of concessions, rather than the specifics of the agreement. Their vote negated the need for a vote by the Teamsters.

Teamsters more receptive

The Teamsters appeared far more receptive to the pilots' deal yesterday than did the Machinists, whose leadership faces something of a public relations quandary.

If they agree to a new vote by their members, they will be tacitly acknowledging that the pilots pushed for a better deal. But if they decide not to hold a vote, they face bearing the burden of pushing the carrier into bankruptcy.

Leaders of the Teamsters and the Machinists suggested they would need three weeks to a month to review the pilots' agreement and arrange a vote by their members.

The required majorities of the airline's lenders and suppliers have approved a restructuring of Northwest's debt.

Although the deal is likely to stabilize airline industry pricing in the short term, it will add some longer-term competitive pressures to the so-called Big Three airlines -- American, United and Delta -- which are struggling to cut costs to compete against lower-cost carriers.

"This will be one more spur in the side to get them moving on costs," said John Stodden, an industry analyst with Duff & Phelps in Chicago.

The Northwest agreement is therefore expected to represent at the very least a starting point for discussions among the largest airlines and their labor groups, who, after a string of airline bankruptcies through the 1980s, appear more willing to strike an agreement.

Don Skiados, a spokesman for the Air Line Pilots Association, said he expected that the airlines would use his union's agreement in other negotiations.

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