Northwest Airlines has negotiated a labour deal with its Air Line Pilots Association (ALPA) union that saves it $265 million a year. The deal is connected to its financial restructuring, with the tentative pact going ahead as long as the airline renegotiates or refinances $975 million in revolving credit that expires in October 2005.
The link demanded by the pilots between the concessions and the credit pact is described as "unusual" by Standard & Poor credit analyst Phil Baggaley. However, JP Morgan analyst Jamie Baker says: "It is not a serious impediment. This is the deal we had been hoping for, having already assumed Northwest would settle for $600 million in total labour cost savings against its stated $900 million target." Northwest wants to save a total of about $950 million a year, including a management cut of abut $35 million to which it has committed.
Northwest put the deal to ALPA in June, narrowing the gap between its original request for $440 million in savings, while the pilots were offering $200 million. The credit agreement becomes a short-term liability and could trigger consequences in other credit pacts if not renegotiated at least a year in advance, according to the union.
The union and the airline were both silent about any possible equity stake the pilots might gain in return for their concessions. Baker says the savings are equivalent to a $5-a-barrel cut in oil prices. Merrill Lynch analyst Mike Linenberg says the deal "should effectively grease the skids for contract discussions with all of Northwest's labour groups". The union that represents ground workers is negotiating now, and talks will soon begin with machinists and flight attendants.
Northwest's good news is the exception among labour developments. At Delta Air Lines, pilot negotiations dragged on and the carrier came closer to a bankruptcy filing that many saw as inevitable whether or not ALPA agrees Delta's demands for about $1 billion in annual savings. So far, says Delta, ALPA's counterproposals have fallen well short of its target. The ALPA proposal also includes giving the pilots 25% of the company's outstanding stock.
Source: Airline Business
