Northwest Airlines President Doug Steenland, along with several of the airline’s union representatives, testified today at a U.S. Department of Labor hearing regarding the airline’s application to permit it to contribute common stock of its subsidiary, Pinnacle Airlines, Corp., to its employee pension plans to satisfy contribution requirements in calendar years 2003 and 2004.
In discussing the current economic environment, Steenland said, “The airline industry is suffering through its worst economic crisis ever.”
“The crisis began in February 2001 with the global recession that still continues. The events of September 11, 2001, put tremendous additional economic pressure on the industry. Since September 11, reduced demand and increased security costs have continued to cripple the industry. Rising oil prices, the Iraq war and the outbreak of the SARS (Severe Acute Respiratory Syndrome) virus have compounded the industry’s problems.”
Discussing pension funding, Steenland continued, “At the same time that the airline industry faces its worst economic crisis, the industry also faces unprecedented increases in pension costs. At the end of 1999, Northwest’s pension plans were, in the aggregate, over funded. Unprecedented declines in the stock market since 1999 account for a significant portion of the underfunding that exists today. If we had experienced a more typical capital market environment since 1999, Northwest’s plans would have been nearly fully funded at the end of 2002.”
Steenland added that relative to other major airlines, Northwest is in sound financial shape, but it still faces the same significant economic challenges as the rest of the industry and must take aggressive steps to maintain its liquidity.
In addition to getting its labor costs in line with major competitors, Steenland said the contribution of Pinnacle stock to satisfy current pension funding obligations is a key element in Northwest’s plan to maintain its overall liquidity.
“By contributing Pinnacle stock, Northwest will be able to meet near term funding obligations through the contribution of what independent experts have determined to be a valuable security with substantial investment upside. At the same time, the contribution of Pinnacle stock allows Northwest to preserve over $330 million in cash to weather these challenging times.”
The Northwest president noted that four of its employee unions—the Air Line Pilots Association, the Transportation Workers Union, Aircraft Technical Support Association and Northwest Airlines Meteorology Association—have joined the airline in urging the Labor Department to approve the proposed exemption that would allow Northwest to contribute Pinnacle stock to all of its employee pension plans during calendar years 2003 and 2004.
A final decision by the Department of Labor is expected in the near future.