Northwest pilots approve pay-cut deal

Northwest has been looking for $1.4 billion in labor cost savings in its bankrutpcy restructuring, and the pilots deal gives it nearly $360 million towards that goal.

Mark McClain, chairman of the Airline Pilots Association, which represents Northwest's nearly 5,000 pilots, says he's glad that this part of the process is over for the pilots. But he says his relief is tempered by the pain of concessions.

"You don't feel good about ratifying an agreement that provides the type of hardship this one does for NWA pilots and their families. However, we've passed another hurdle in working toward long term success of NWA, which is a pursuit we've been going towards since 2003," McClain said.

McClain says the pilots' nearly 40-percent pay cuts will require many to dramatically change their way of life. He says some pilots have started selling their houses because they no longer can pay their mortgages. But still, he says the fact that 64 percent of the pilots said yes to the contract shows their willingness to do their part in Northwest's bankruptcy process.

"Certainly from our vantage point as pilots, we've done all we can to ensure the success of NWA, but now it's incumbent on other parties to do the same, to do what's required for a successful restructuring. Our job will be to make sure NWA management doesn't squander our sacrifices," he said.

The contract gives the pilots extra incentive to see their sacrifices put to good use: it provides pilots with 13-percent ownership in the airline once it emerges from bankruptcy. That stake is worth nearly $890 million.

In a statement, Northwest CEO Doug Steenland praised the pilots' leadership role in agreeing to cuts and said their ratification of the contract is "a major step in ensuring the long term success of our airline."

According to one of Northwest's recent filings with the Securities Exchange Commission, Steenland is taking an income hit in the bankruptcy. He's agreed to two pay cuts, and his salary has dropped nearly 24 percent since he took over as CEO in 2004. His total compensation is $3.73 million.

As for cost savings from other labor groups, the company still has to close contract deals with two other big unions. Only half of the ground workers union have ratified its contract; some of that union's work groups now face the possibility a bankruptcy judge will let Northwest impose new contract terms on them. And the flight attendants union starts voting next week on a deal its leadership reached with the company.

University of Minnesota labor relations expert John Budd says the pilots' contract ratification will help grease the wheels for other contract approvals.

"If the pilots had voted against it, I think it would've cast a pall over the flight attendants' voting, and frankly wouldn't have given them very many reasons to vote in favor of the tentative agreement. But now that the the pilots voted in favor, I think it will bode positively for some flight attendants who might be on the fence now," according to Budd.

Airline industry consultant Mike Boyd thinks the pilots deal will put pressure on the ground workers who rejected a settlement proposal to sign off on a contract as well.

"It's pretty clear that Northwest is getting its labor unions behind it or with it, and going forward, I think NWA with its plan will be out of bankruptcy much quicker than people thought, and a much stronger airline as well," Boyd said.

Others are less certain. Douglas Baird, a bankruptcy professor at the University of Chicago Law School says it's premature to assess Northwest's fate.

"The essential reality of these airline bankruptcies is we don't know if any of them will work, according to Baird. "The history of these airlines reorganizing in bankruptcy is pretty bleak. Continental is the only one that's gone through bankruptcy, in that case twice, and still survived for a significant period of time. US Airways and United...it's still too soon to tell."

As for the pilots, their newly ratified contracts won't go into effect until the other labor unions' contracts are concluded.

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