Finance exec backs NWA labor cuts

19th Jan 2006

A Northwest Airline’s finance executive has re-iterated that labor cost
reductions are critical to the survival of the company.David M. Davis,
senior vice president - finance and controller, said the airline’s financial
problems can be overcome only if a competitive cost structure can be
implemented that will permit significant labor savings.

Davis’ remarks were prepared for
presentation at the U.S. Bankruptcy Court for the Southern District of New York
hearing today regarding Northwest’s motions, filed under Sections 1113(c) and
1114 of the Bankruptcy Code, asking the court to reject the company’s
collective bargaining agreements with the Air Line Pilots Association (ALPA)
and the Professional Flight Attendants Association (PFAA).Ê Yesterday, the hearing
began on the company’s
motions under Section 1113(c), as well as Section 1114 to modify its retiree
employee benefits.Ê

ÊÊÊ “We cannot continue to lose $4 to $5
million per day on top of the $14 billion debt and declining cash balance that
we have.Ê Northwest’s cash and debt
position is unacceptable and among the worst in the industry.Ê We have sold $1.6
billion in assets since
2001, yet have added $2.3 billion in debt.Ê
At this rate, by the end of 2006, our cash balance will be less than
$700 million without labor cost relief,” said Davis.

ÊÊÊ “Northwest’s pay per employee is the
highest in the industry.Ê We must address
our payroll of $3.6 billion along with work rule issues to make Northwest
competitive.Ê The low-cost carriers represented only 8 percent of the market in 1990, today they represent
28 percent, and are forecast to control at least 37 percent of the domestic
market by as soon as 2010.”

ÊÊÊ “The LCCs have 1,025 aircraft on order
or option.Ê With these aircraft they are
aggressively moving into Northwest markets and dropping fares, putting pressure
on yields that have continued to decline for more than a decade,“Davis


ÊÊÊ “Our competitors are rapidly deploying
70-100 seat aircraft in more than 100 of our markets.Ê No other legacy carrier has a
percentage of regional departures in their operation and this too must change
if we are going to be viable.Ê Work rules
must not bind Northwest’s 34,000 employees from being competitive in the
current environment.”

ÊÊÊ In summarizing his presentation, Davis
said, “We believe our business plan is the correct path forward.Ê We need to
reduce our fleet by 15 percent,
reducing unprofitable flying and exit unprofitable markets which will save
Northwest $400 million annually.”Ê

ÊÊÊ “On our domestic network we must match
the narrow-body fleet with demand.Ê
Internationally, we must optimize our Atlantic schedule and add new
routes in the Pacific as our Boeing 787s are delivered.Ê The introduction of the new
technology Boeing
787 aircraft and expansion of the Airbus 330 fleet are estimated to improve
profitability in excess of $150 million annually.”

ÊÊÊ “To buy these new aircraft we must
produce sufficient cash to support up to $11 billion in capital requirements
needed to achieve fleet renewal over the next 10 years.Ê However, none of this can
be achieved without
achieving permanent labor cost reductions with ALPA, the International
Association of Machinists and Aerospace Workers and PFAA unions and
retirees,” Davis said.



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