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Northwest Airlines Warns Of Bankruptcy

July 27, 2005
Northwest Airlines has joined the club; it’s the latest U.S. airline to warn it faces bankruptcy without concessions from its unions and an infusion of cash. Oh yes, it also needs Congress to pass a pension reform bill.

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Both United Airlines and US Airways are in bankruptcy, struggling to get out. Both ‘legacy’ carriers face mounting losses from rising fuel prices, increased competition, and escalating pension liabilities.

This is not Northwest’s first warning, but it is the most dire-sounding. Northwest said it’s deepening loss in the second quarter places it under even more pressure to come up with $1.1 billion in wage and benefit cuts. The company said this week it lost $279 million in the latest quarter, compared with $78 million a year ago. It lost even more in the first quarter, and since 2001, CEO Douglas Steenland says Northwest has accumulated $3.6 billion in red ink.

Steenland this week told reporters and analysts that the company will restructure, one way or the other. Either it does so by achieving the savings, or it will make the changes under bankruptcy protection.

Northwest, the fifth-largest carrier in the United States, has been engaged in sometimes contentious negotiations with its employee unions since 2002. So far, it has restructured contracts with pilots and some management employees, saving $300 million a year.

Steenland became president of Northwest late last year, and since then has pressed employee unions more vigorously for concessions. Most recently the mechanics union walked away from talks, saying the two sides were too far apart. Northwest is seeking to cut salary and benefits by $176 million in that union contract.

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