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 With its flight attendants on board, Northwest Airlines Corp. flew out of bankruptcy protection May 31. After gaining exit approval May 18 and reaching an agreement with flight attendants May 29, the company emerged at month's end. The Deal's Lou Whiteman asks: Will consolidation follow? The agreement with flight attendants follows a tentative deal a month earlier. Terms call for flight attendants to receive a $182 million unsecured claim to be sold for cash and distributed to them when the company emerges. Additional contract modifications aimed at improving their work environment are also included, the company said. The agreement ends a months-long battle and was a major step the company needed to hit its May 31 target.
UNION BLUES In September, Northwest's flight attendants asked the National Mediation Board to declare talks with the struggling airline at an impasse—potentially paving the way for a legal strike against the carrier. The two forces had been at odds for months. In August, it looked likely they could put a plan in motion to wreak havoc on the airline after a judge rejected a request by the carrier for an injunction barring them from work stoppage. Several court rulings subsequently staved off such an event. The plan, dubbed "chaos," or "create havoc around our system," would consist of employees randomly failing to show for work, forcing the carrier to cancel flights and ultimately trying to dissuade prospective passengers from buying tickets issued by the Eagan, Minn.-based carrier. Flight attendants are the last labor pool Northwest needs to come aboard with its overhaul and the company is still some distance from clear skies. An ever-looming deal with the Association of Flight Attendants would be part of an initiative to trim $1.4 billion in annual labor-related costs through reorganization, if it ever happens. On a victorious note for the airline, its mechanics and cleaners voted to end their 15-month strike in November with an agreement that could possibly allow some union members to regain jobs lost after walking away in August 2005, instead of agreeing to cuts the airline said it needed to stay competitive. FLYING HIGH To that end, Northwest was evaluating its own prospects in late 2006, turning to Evercore Partners to explore strategic alternatives, while the M&A trend was steaming along industry-wide. But Northwest's struggles with organized labor are too obvious to ignore and potentially off-putting for any prospective acquirer, writes The Deal's Lou Whiteman. On the acquisitive side of things, Northwest picked up also-bankrupt Mesaba Aviation Inc. Feb. 27 with plans to operate it as a regional affiliate. In August 2006, Northwest won court approval for a $1.12 billion refinancing package that enabled the carrier to gain more favorable terms on its bank loans and provided it with access to cash. Additionally, Northwest also won approval to convert the loan to permanent exit financing. SUSTAINED TURBULENCE Like many large corporate employers to go belly up, Northwest's labor struggles have been tangled as it has fought for relief enough to emerge from bankruptcy. A play-by-play of the dealings:
Central to the Northwest story is the crumbling power of the once all-mighty U.S. union and to an extent, it mirrors a parallel situation between General Motors Co. and its own unions. And just when it seemed things couldn't get much worse for Northwest, in March, the U.S. Department of Labor launched an investigation into whether the carrier had been underfunding pensions before filing for bankruptcy protection in 2005. Also in March 2006, Northwest reported a 2005 loss of $2.6 billion. CROWDED AIR SPACE Northwest isn't the only carrier stuck struggling in a changing industry. It helped regional carrier Mesaba Aviation Inc. fly into bankruptcy protection in October by forcing schedule reductions. Delta Air Lines Inc. also sailed into bankruptcy protection the same day Northwest did, triggering speculation of a court-enforced merger between the two.—Carolyn Murphy & Gerald Magpily
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