The bankruptcy filings of Delta Air Lines and Northwest Airlines reflect the compelling impact of competitive forces and external factors on an embattled industry. Their restructuring will further diminish the gold-standard service and labor contracts that the mainstay airlines have struggled to maintain.
The filings by No. 3 Delta and No. 4 Northwest mean that four of the seven biggest U.S. carriers are in reorganization. United Airlines filed in 2002 and U.S. Airways in 2002 and again last year.
No. 1 American Airlines, which reduced its schedule, laid off staff and won $1.8 billion in annual labor concessions in 2003, recorded a second-quarter profit and seems to be in good shape for now.
As air travel recovered from the Sept. 11 attacks, discount airlines like Southwest and JetBlue made many of the gains. The old-line “legacy” carriers, with high salaries and huge pension obligations, cut fares to compete. But even with nearly 80 percent of seats filled, overhead and soaring fuel costs kept Delta and Northwest in the red. Northwest is currently operating despite a mechanics strike over pay cuts.
Cost-cutting measures, such as layoffs, contract concessions from labor and reducing total flights have been to no avail.
The spot price for jet fuel is up 239 percent from four years ago. Northwest, for example, projects a 2005 fuel bill of $3.3 billion versus $1.1 billion for last year.
Bankruptcy protection may allow the airlines to trim ship by negating union contracts. A Delta captain for the smallest mainline jets averages $195,000 a year – 72 percent more than the average for all airline pilots. At United, senior captains earning $22,00 to $24,000 a month saw their pay cut to $15,000 to $16,000 a month.
Also, Delta and Northwest want to get in line with United and USAirways by ditching their extensive pension obligations and shifting the burden to the federal Pension Benefit Guaranty Corp. That will add to the load for the PBGC, which, according to a Congressional Budget Office estimate, faces and unfunded liability of $87 billion over the next decade.
With hundreds of billions needed to rebuild the Gulf Coast and keep U.S. troops in Iraq and Afghanistan, where will such money come from?
United is bidding to emerge from bankruptcy early next year, and we hope Delta and Northwest can follow the same path. A strong aviation industry is vital to both national interests and the personal travel needs of millions of Americans.
