Minneapolis – Northwest Airlines Corp. kept most of its planes flying for a third day since mechanics went on strike, boosting the company’s bargaining power with unions and sending its shares and bonds higher.
The carrier completed 98 percent of its flights over the past weekend, Fulcrum Global Partners analyst Susan Donofrio in New York said in a report today, citing Northwest management.
About half of Northwest’s flights were delayed, some analysts said. Northwest shares rose 28 cents, or 5.2 percent, to $5.66 at 4 p.m. in Nasdaq Stock Market composite trading.
“Northwest is in the lead right now,” Darryl Jenkins, an adjunct professor at Embry-Riddle Aeronautical University in Daytona Beach, Florida, said in an interview today. “They will be able to fly through this without too many problems.” The airline’s plan to spend as much as $107 million to hire replacement workers and use outside contractors for some repair work paid off with no major disruptions over the weekend. The St. Paul, Minnesota-based company still needs to win concessions from flight attendants and bag handlers. It wants further cost reductions from pilots, who have already agreed to some cuts.
Northwest, which has posted $2.5 billion in losses over the past four years, is seeking to cut total annual labor expense by $1.1 billion to stem losses and avoid a bankruptcy filing. It has won $300 million in cuts from pilots and managers and was seeking $176 million from the mechanics union. The company has said rising fuel prices make the cuts more imperative.
“Even with the full $1.1 billion in labor concessions, the company faces major challenges as fuel prices continue to rise and the slow fall travel season approaches,” Calyon Securities analyst Ray Neidl said in a report. The price of jet fuel has risen 52 percent this year.
Northwest is also urging Congress to pass legislation that would allow it to defer contributions to its pension funds and has said that is critical to its plan to avert bankruptcy.
Strike Steve MacFarlane, the union’s assistant national director, said maintenance difficulties will mount over time, particularly because the airline operates so many older planes.
“We never believed we were going to shut the airline down,” MacFarlane said. “We knew this was going to take some time.” Pickets A nationwide strike by the carrier’s Aircraft Mechanics Fraternal Association, which represents 4,200 mechanics, aircraft cleaners and building custodians, started the walkout with pickets at 35 U.S. airports on Aug. 20. The strike, which Northwest said could have forced it into bankruptcy, failed to draw sympathy strikes from other unions.
The union picketed passenger entrances and airport trucking entrances in an effort to disrupt the delivery of supplies such as beverages and aircraft parts. The union plans to have a 24- hour picket schedule seven days a week, leaders said.
Northwest has won fewer concessions from its workers than any other major airline.
“At the end of the day, Northwest has sent a message to the other labor groups,” Roger King, an analyst at New York- based CreditSights, said in a report today.
Flights Northwest spokeswoman Tracy Carlson declined to say how many flights were canceled or delayed this weekend.
Northwest, which funnels most of its flights through its airport bases in Detroit, Minneapolis and Memphis, Tennessee, planned 1,473 flights for today in a scaled-back fall schedule.
Spokesman Kurt Ebenhoch declined to say how many operated the same day a week earlier. During the U.S. summer, Northwest operated an average of 1,600 daily flights, with more service on weekdays than weekends.
At the carrier’s largest airport base in Detroit, a survey of about 72 posted flight arrivals at 1:15 p.m. today showed three canceled and nine delayed by a half hour or more. A survey of about 136 departures showed six canceled and eight delayed by at least a half hour.
Cancellations can upset a key constituency, customers traveling on business, said Julius Maldutis, an independent analyst in New York who has covered the industry for 42 years.
Delays won’t bother business travelers as much because they’ve become accustomed to that, he said.
Delays Joe Brancatelli, who writes for business travelers at JoeSentMe.com, disagreed. He said 46.5 percent of the Northwest flights on Aug. 20 arrived on time, with an average delay of 1 hour and 11 minutes. Yesterday, 53.5 percent arrived on time, with an average delay of 1 hour, six minutes, he said.
“They are doing miserably,” Brancatelli, who is based in Cold Spring, New York, said in an interview today. “I work for business travelers. They’re worried about, are my flights running on time? Two, three-hour delays are not acceptable.” J.P. Morgan Securities Inc. analyst Jamie Baker in New York said 58 percent of Northwest’s flights in Detroit and Minneapolis on Aug. 20 left the gate within 15 minutes of their scheduled departure times through 5:15 p.m.
About 79 percent of Northwest’s flights in the 12 months ended June arrived on time, according to the U.S. Department of Transportation. The industry averaged 78 percent.
Some workers at Northwest engaged in a work slowdown the day before the strike, leading the company to take a “high number” of aircraft out of service, Ebenhoch said Saturday. The company apologized to customers and said replacement workers were helping reduce the repair backlog.
One traveler at the Detroit airport yesterday, Tim Adams, said he didn’t like the way Northwest was treating its employees and he was “nervous” about the replacement workers. The General Motors Corp. engineer said his flight to Kansas City was on time.
“I stayed loyal to Northwest, but maybe I should think about using another airline,” he said in an interview.
Jan Durbahn, a travel agent in Stewartville, Minnesota, said she had one customer seeking a flight to Manila who had no qualms about booking on Northwest yesterday.
Contingency Plan The airline estimated in a report to its board that it might spend as much as $107 million on the contingency plan to keep flights operating amid the strike. The company estimated it can recover some costs over time to reduce the amount to $68 million. The plan included training 1,200 replacement mechanics and 1,500 flight attendants in the event that those workers decided to strike in sympathy.
Standard & Poor’s said today it may lower ratings on Northwest’s debt, citing the breakdown of negotiations and the strike. S&P rates Northwest’s senior unsecured debt CCC-, its fourth-lowest level.
The airline’s 8.875 percent notes maturing in 2006 rose about 4 cents on the dollar to 66 cents, according to Trace, the bond-price reporting system of NASD.
Talks Northwest is trying to avoid following UAL Corp.’s United Airlines and US Airways Group Inc. into bankruptcy. Delta Air Lines Inc., the third-largest U.S. airline, has also warned it may seek bankruptcy protection as fuel prices soar.
Negotiations between Northwest and union broke down last week after five months, mainly over the airline’s proposal to fire all 600 of its cleaners and custodians and to pare mechanic jobs to 2,350 from 3,600.
No further negotiations are planned at this point. The National Mediation Board, which had been overseeing the talks, encouraged the two sides to return to bargaining.
Northwest said it’s now planning to impose its own terms on any returning union members, including a pay rate of $26.53 an hour, the same rate that the replacement mechanics are earning.
The company’s final offer to the union was a rate of $27.17, down from their current $36.
The union’s ranks have declined as workers retired to save their health-care benefits in the weeks before the strike. About 250 members retired this month, MacFarlane said.
