Northwest Airlines out of bankruptcy

MINNEAPOLIS - The wave of airline bankruptcies that began after the Sept. 11, 2001, terrorist attacks ends today when Northwest Airlines Corp. finishes its reorganization.

Northwest comes out of Chapter 11 a little smaller, a lot more efficient, and with some of the lowest costs among the major carriers. It has slashed debt $4.2 billion, cut $400 million a year in the cost of maintaining its fleet, and trimmed unprofitable routes.

It cut labor costs $1.4 billion a year, too, in a bruising four-year fight with its unions that did nothing to erase Northwest's reputation for terrible labor relations. Yesterday, flight attendants and pilots in St. Paul protested executive pay at the carrier by rallying around a giant inflatable rat clutching bags of money in its paws. Northwest's 400 top managers are set to get a collective 5 percent equity stake, worth an estimated $297 million, in the reorganized company.

"They're going to have dramatically different economics post-bankruptcy, which is the good news," said Vaughn Cordle, who runs number-crunching firm Airline Forecasts and is an airline pilot. "The bad news is, they've beaten down labor so much that they've got morale problems."

Like the rest of the airline industry, Northwest has been on a roller coaster the last decade.

On Sept. 10, 2001, the airline industry was coming off the 1990s economic boom, as business travel rose and fuel prices stayed low. U.S. airlines raked in about $5 billion a year in profits from 1997 through 1999 and almost $2.5 billion in 2000, according to government statistics compiled by the Air Transport Association.

But Sept. 11, a slowing economy, and the run-up to the Iraq war hurt business travel, and rising fuel prices hurt airline profitability.

Northwest also was hurt by the SARS health scare in Asia, where it and UAL Corp.'s United Airlines are the two largest U.S. carriers. Northwest and Delta Air Lines Inc. filed for bankruptcy protection Sept. 14, 2005, joining UAL and US Airways Group Inc. That meant four of the nation's seven largest airlines were then in Chapter 11 bankruptcy protection.

The ones not in bankruptcy were American, Continental and Southwest.

At the end of 2005, Northwest's costs were higher than those at every other airline except US Airways, according to government figures. By the end of 2006, when most of the airline restructuring was finished, Northwest's costs were lower than those at US Airways, Delta and Continental, although still higher than costs at American and United.

Labor costs per mile flown, meanwhile, are now lower than at those carriers and only slightly higher than at Southwest Airlines Co., Cordle at Airline Forecasts said.

He said he still worries that Northwest's debt, while lower than it was, is higher than is healthy - especially considering that Northwest's fleet is old and that it will soon be spending money to upgrade it.

Northwest plans to emerge from bankruptcy with roughly $9.2 billion in debt. But it also plans to spend $1.4 billion this year and almost $1.8 billion next year adding to its fleet, including Boeing's new 787 Dreamliner next year.

One advantage Northwest will have is that its new labor contracts lock workers into lower pay rates and more company-friendly work rules through the end of 2011, longer than any of its U.S. competitors. Flight attendants, for instance, now see their pay top out at about $35,400 a year, down from $44,190 before Northwest filed for bankruptcy protection, according to the union.

Even with the restructuring by the major carriers over the last five years, it's still a volatile business, and no one is ruling out future trips to Chapter 11.