Air Transport World

The hub specialist. (Northwest Airlines Inc.)(includes related articles on air transport and employee contracts)

Northwest Airlines turned itself around by focusing on its core competencies

MINNEAPOLIS--When they write the book on airline turnarounds, Northwest is going to start chapter one. Three years ago, these guys were knocking on the door of the bankruptcy court, with cumulative losses since 1990 totaling $1.6 billion. Today, Northwest is one of the most profitable airlines in the world. It earned $392 million in 1995 and followed that up with a record first-quarter profit of $53 million.

That doesn't tell the whole story, however, because Northwest has been setting aside stock for its employees since mid-1993, which has taken a hefty chunk out of reported earnings-- about $122 million in 1995, an additional $30 million in the first quarter of 1996.

The airline isn't complaining: If employees hadn't kicked in $886 million worth of wage and benefit concessions in exchange for the stock in 1993, it might not be around today. Instead, it racked up 11 consecutive profitable quarters and expected to make it an even dozen when results for the June 30 quarter were released in late July.

The employees aren't griping either. As Northwest's performance has improved, the value of their stock has risen. Senior VP-Finance and Treasurer Joe Francht figures the concessions are worth about $30 per share; the stock is trading at around $44 a share. Francht sounds as if he's looking forward to the fall, when the stock setasides end and wages snap back to 1993 levels, even though it will add about $300 million to Northwest's annual labor bill (see box, page 50).

The implications of the snapback, upcoming contract negotiations with pilot, machinist and flight attendant unions, and continuing difficulties with the KLM alliance all were addressed by senior airline officials during a day-long media briefing held here recently.

The airline makes no secret of its disagreement with KLM, which blew up last year when the NWA board of directors eliminated an option previously granted for KLM to increase its investment in NWA to 25%. "They have ... equated alliance with governance. We don't," stated President and CEO John Dasburg. Executives also downplayed the importance of the alliance, an abrupt change from the past, when they spoke grandly of a single global airline system. …

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