Northwest Airlines Corp., the
fourth-largest U.S. carrier, filed for bankruptcy after record
fuel prices and a strike by mechanics compounded losses.
The airline, which started 79 years ago carrying mail,
filed for Chapter 11 protection today in U.S. Bankruptcy Court
in New York, according to court papers.
The filing followed those of Delta Air Lines Inc. today,
UAL Corp.’s United Airlines in 2002 and US Airways Group Inc.
last year. The biggest U.S. airlines have lost $38.2 billion
since 2000 amid competition from discount carriers such as
Southwest Airlines Co. A 65 percent rise in jet-fuel prices this
year made it even harder to match discount fares.
Northwest said repeatedly this year that it needed $1.1
billion in annual labor cost reductions and the postponement of
pension contributions to return to profitability. The airline’s
mechanics went on strike Aug. 20 because the company wanted to
cut jobs to win $176 million in concessions from their union,
which also represents custodians and aircraft cleaners.
The company has since raised its demands to $203 million in
concessions from the union because of the rise in fuel prices.
The carrier has for two years tried to gain union support
for reductions in pay and benefits, citing the rising cost of
fuel, its second-biggest expense after labor.
Northwest has also failed to reach agreements with its bag
handlers and flight attendants, winning only $300 million from
pilots and managers. The pilots union said Sept. 1 it would
consider offering additional concessions.
Pensions
Northwest is also seeking to ease its retirement
obligations, and Chief Executive Officer Douglas Steenland told
Congress in May that the airline might seek bankruptcy
protection without passage of a new law allowing the delay of
pension contributions.
Damage to oil rigs, refineries and pipelines caused by
Hurricane Katrina sent the price of crude oil to a record $70.85
a barrel on Aug. 30. The price of jet fuel, which is refined
from crude oil, is up 6 percent at a $2.03 gallon since the
storm struck the U.S. Gulf Coast Aug. 29, and has risen 49
percent in the past 12 months.
U.S. airlines can’t make money unless prices fall below
about $1.20, said AeroEcon economist David Swierenga.
Losses
Major U.S. carriers began to post losses in early 2001 as a
slowing U.S. economy led business travelers to shop for lower
fares on the Internet and fly discount carriers such as
Southwest and JetBlue Airways Corp.
Passenger demand fell further after the Sept. 11 terrorist
attacks, leading the major airlines to cut almost 100,000 jobs
and cut other costs. Northwest in late 2002 closed an Atlanta
aircraft maintenance facility, a reservations center in Long
Beach, California, and ticket offices in Bloomington, Minnesota,
as well as in San Jose, California, and New York.
Chicago-based United filed for bankruptcy in December 2002
and expects to exit court protection early next year. US Airways
plans to exit its second bankruptcy since 2002 by merging with
America West Holdings Corp. later this year.
Northwest began in 1926 as a mail carrier flying between
Chicago and the Minneapolis area, using two open-cockpit
biplanes. Later that year the airline started the first U.S.
closed-cabin commercial service for three passengers with a
Stinson Detroiter.
The airline offered the first U.S. international service
with flights to Winnipeg, Canada, starting in 1928.
In 1986, Northwest bought Midwest rival Republic Airlines
Inc. for $884 million. The combined carrier was in turn
purchased for $3.5 billion in 1989 by a group of investors led
by Al Checchi who would later run for governor in California
and Gary Wilson and taken private for the first time since
1941. The investors also included KLM Royal Dutch Airlines NV,
which began linking flights with Northwest in 1991.
Northwest went public again in 1994, raising $260 million
in an initial public offering. KLM, which last year was bought
by Air France, sold its Northwest stake in 1998.
Deregulation
Like other major carriers, Northwest ran into financial
trouble in recent decades as U.S. deregulation of the industry
allowed rivals to lower prices. In 1993, Northwest refinanced
its debt and employees agreed to three years of pay concessions
in exchange for a 30 percent stake in the company. Two unions
are fighting the company in court over its 2003 decision not to
redeem the shares because of financial distress.
