ilinipilot
Barely awake in Training
- Joined
- Feb 5, 2002
- Posts
- 367
From NY Times, an interesting read:
NORTHWEST AIRLINES, with the sharpest elbows in the industry, is hustling through bankruptcy proceedings, accomplishing in six months what took United Airlines two years.
But once Northwest emerges from bankruptcy, those aggressive tendencies could backfire. Workers, bitter over the size of concessions and the way Northwest extracted them, could become more difficult to manage as the airline tries to improve customer service and efficiency.
In labor talks, Northwest "went beyond what some other airlines asked for," said Philip Baggaley, an airline credit analyst at Standard & Poor's.
It will take some time to heal relations with employees, he said. Moreover, the company's reputation for confrontational labor tactics and bruising competitive moves could make it less appealing as a merger partner — especially if Northwest's management wants to run a combined company. And the airline industry badly needs further consolidation to lower its costs.
An executive at one firm that is a major investor in the airline industry, who would not speak for attribution because his firm has a policy against commenting on investments, said he had watched Northwest management admiringly since it filed for bankruptcy protection on Sept. 14.
It is true, as the investor noted, that Douglas M. Steenland, Northwest's chief executive, and Neal S. Cohen, the chief financial officer, quickly won tentative labor agreements with all but one major labor group, helping Northwest to $1.4 billion in annual labor savings. And Mr. Steenland and Mr. Cohen also immediately began ridding the airline of unnecessary planes, moving toward a goal of reducing annual fleet costs by $400 million. "I think they're pretty good," the investor said.
But in any merger possibility after bankruptcy, the investor said, "There's a negative to having them there."
Mr. Steenland, in his post since October 2004, and Mr. Cohen, finance chief since May, refused requests to be interviewed.
Kurt Ebenhoch, a spokesman for Northwest, which is based in Eagan, Minn., said in an e-mail message: "Northwest's management team members are pragmatic realists that are focused on doing what employees value the most — transforming the airline from a legacy business into a carrier that can be successful."
He added, noting the widespread pain among airline industry workers, that "Northwest employees are going through the same difficult changes and the company appreciates and recognizes that fact."
Before filing for bankruptcy, Northwest replaced its striking mechanics, betting correctly that other workers would cross the mechanics' picket line and keep working. The airline made what flight attendants and pilots saw as threats to outsource some of their jobs.
And for years, competing airlines say, Northwest has responded most aggressively when other airlines enter markets it dominates, dropping fares and increasing the number of flights to discourage competition.
"They are quite famous for protecting their hubs," said an executive at one low-cost airline, who would not be identified because his company does not permit employees to comment on competitors' pricing.
Should federal legislation be enacted to give airlines 20 years to fund their pension obligations fully, Northwest could emerge from bankruptcy as soon as the end of 2006, Mr. Baggaley at Standard & Poor's said.
"Everything has been quick in this bankruptcy," said Roger King, an analyst at CreditSights. With labor contracts largely negotiated, Northwest can focus on renegotiating its agreements with regional airlines that feed shorter-length flights into Northwest's hubs, "and pretty much have all the heavy lifting out of the way," Mr. King said.
Just days after filing for Chapter 11 protection, Northwest got court approval to rid itself of some planes and renegotiate leases on many others. Comparing that rapid progress with the 38-month bankruptcy of the UAL Corporation, parent of United, Mr. King said, "It took UAL two years to reach this stage." United exited bankruptcy last month.
Delta Air Lines filed for bankruptcy protection the same day as Northwest. And though Delta has just one major labor group — its pilots — represented by a union, its progress has lagged Northwest's, Mr. King said. Delta is now in arbitration with its pilots, who are threatening to strike.
Northwest's management "really attacked these issues aggressively," Mr. King said. "They haven't backed down. Now they're almost done."
The pension problem, of course, could stall Northwest's exit from bankruptcy if legislation is not passed; Northwest pensions are underfunded by $3.7 billion. It has one round of labor talks to complete — with ground workers who rejected an earlier contract. And other unions still need to ratify agreements.
But the investment community is already starting to look beyond Northwest's bankruptcy. And Northwest faces some big challenges.
Pay cuts permit airlines to survive and leave bankruptcy. But to prosper in the long term, they need to operate more efficiently. And that requires the good will of workers. To fly planes longer hours each day, and thus collect more money, airlines are trying to clean and service planes more quickly after landing. Northwest also needs to buy a lot of new planes. It now operates 115 DC-9's that, on average, are 341/2 years old. They guzzle much more fuel than newer planes. They require more costly maintenance. And with 100 to 125 seats, they are often too big for the shorter routes with fewer passengers, like Memphis to Austin, Tex., and Minneapolis to Flint, Mich.
Over several years, Northwest hopes to replace many of those DC-9's with smaller regional jets. Replacing the entire DC-9 fleet would cost billions of dollars.
Northwest won concessions from the pilots' union to permit it to contract with regional airlines to fly routes where smaller jets work best. The agreement with pilots would also call for paying them less if they fly 90-seat regional jets instead of the larger DC-9's.
Northwest's most valuable business is its network of routes throughout Asia, and that is the asset a merger partner would most covet. Delta, American Airlines and Continental Airlines all lack a major presence in Asia, said Mr. King, the analyst at CreditSights. A combination of two big airlines could face opposition on antitrust grounds but it would let the larger company close some hubs and operate more efficiently.
Striking a merger agreement could be easier while Northwest is under bankruptcy protection because it could still dispose of planes and other assets to make itself a better fit with another carrier.
That permitted US Airways, still in bankruptcy, to merge last year with America West Airlines. "Sooner is better than later," Mr. King said. Northwest would not comment.
NORTHWEST AIRLINES, with the sharpest elbows in the industry, is hustling through bankruptcy proceedings, accomplishing in six months what took United Airlines two years.
But once Northwest emerges from bankruptcy, those aggressive tendencies could backfire. Workers, bitter over the size of concessions and the way Northwest extracted them, could become more difficult to manage as the airline tries to improve customer service and efficiency.
In labor talks, Northwest "went beyond what some other airlines asked for," said Philip Baggaley, an airline credit analyst at Standard & Poor's.
It will take some time to heal relations with employees, he said. Moreover, the company's reputation for confrontational labor tactics and bruising competitive moves could make it less appealing as a merger partner — especially if Northwest's management wants to run a combined company. And the airline industry badly needs further consolidation to lower its costs.
An executive at one firm that is a major investor in the airline industry, who would not speak for attribution because his firm has a policy against commenting on investments, said he had watched Northwest management admiringly since it filed for bankruptcy protection on Sept. 14.
It is true, as the investor noted, that Douglas M. Steenland, Northwest's chief executive, and Neal S. Cohen, the chief financial officer, quickly won tentative labor agreements with all but one major labor group, helping Northwest to $1.4 billion in annual labor savings. And Mr. Steenland and Mr. Cohen also immediately began ridding the airline of unnecessary planes, moving toward a goal of reducing annual fleet costs by $400 million. "I think they're pretty good," the investor said.
But in any merger possibility after bankruptcy, the investor said, "There's a negative to having them there."
Mr. Steenland, in his post since October 2004, and Mr. Cohen, finance chief since May, refused requests to be interviewed.
Kurt Ebenhoch, a spokesman for Northwest, which is based in Eagan, Minn., said in an e-mail message: "Northwest's management team members are pragmatic realists that are focused on doing what employees value the most — transforming the airline from a legacy business into a carrier that can be successful."
He added, noting the widespread pain among airline industry workers, that "Northwest employees are going through the same difficult changes and the company appreciates and recognizes that fact."
Before filing for bankruptcy, Northwest replaced its striking mechanics, betting correctly that other workers would cross the mechanics' picket line and keep working. The airline made what flight attendants and pilots saw as threats to outsource some of their jobs.
And for years, competing airlines say, Northwest has responded most aggressively when other airlines enter markets it dominates, dropping fares and increasing the number of flights to discourage competition.
"They are quite famous for protecting their hubs," said an executive at one low-cost airline, who would not be identified because his company does not permit employees to comment on competitors' pricing.
Should federal legislation be enacted to give airlines 20 years to fund their pension obligations fully, Northwest could emerge from bankruptcy as soon as the end of 2006, Mr. Baggaley at Standard & Poor's said.
"Everything has been quick in this bankruptcy," said Roger King, an analyst at CreditSights. With labor contracts largely negotiated, Northwest can focus on renegotiating its agreements with regional airlines that feed shorter-length flights into Northwest's hubs, "and pretty much have all the heavy lifting out of the way," Mr. King said.
Just days after filing for Chapter 11 protection, Northwest got court approval to rid itself of some planes and renegotiate leases on many others. Comparing that rapid progress with the 38-month bankruptcy of the UAL Corporation, parent of United, Mr. King said, "It took UAL two years to reach this stage." United exited bankruptcy last month.
Delta Air Lines filed for bankruptcy protection the same day as Northwest. And though Delta has just one major labor group — its pilots — represented by a union, its progress has lagged Northwest's, Mr. King said. Delta is now in arbitration with its pilots, who are threatening to strike.
Northwest's management "really attacked these issues aggressively," Mr. King said. "They haven't backed down. Now they're almost done."
The pension problem, of course, could stall Northwest's exit from bankruptcy if legislation is not passed; Northwest pensions are underfunded by $3.7 billion. It has one round of labor talks to complete — with ground workers who rejected an earlier contract. And other unions still need to ratify agreements.
But the investment community is already starting to look beyond Northwest's bankruptcy. And Northwest faces some big challenges.
Pay cuts permit airlines to survive and leave bankruptcy. But to prosper in the long term, they need to operate more efficiently. And that requires the good will of workers. To fly planes longer hours each day, and thus collect more money, airlines are trying to clean and service planes more quickly after landing. Northwest also needs to buy a lot of new planes. It now operates 115 DC-9's that, on average, are 341/2 years old. They guzzle much more fuel than newer planes. They require more costly maintenance. And with 100 to 125 seats, they are often too big for the shorter routes with fewer passengers, like Memphis to Austin, Tex., and Minneapolis to Flint, Mich.
Over several years, Northwest hopes to replace many of those DC-9's with smaller regional jets. Replacing the entire DC-9 fleet would cost billions of dollars.
Northwest won concessions from the pilots' union to permit it to contract with regional airlines to fly routes where smaller jets work best. The agreement with pilots would also call for paying them less if they fly 90-seat regional jets instead of the larger DC-9's.
Northwest's most valuable business is its network of routes throughout Asia, and that is the asset a merger partner would most covet. Delta, American Airlines and Continental Airlines all lack a major presence in Asia, said Mr. King, the analyst at CreditSights. A combination of two big airlines could face opposition on antitrust grounds but it would let the larger company close some hubs and operate more efficiently.
Striking a merger agreement could be easier while Northwest is under bankruptcy protection because it could still dispose of planes and other assets to make itself a better fit with another carrier.
That permitted US Airways, still in bankruptcy, to merge last year with America West Airlines. "Sooner is better than later," Mr. King said. Northwest would not comment.
