High-Stakes Poker

Bankruptcy: The Ultimate Union-Busting Tactic


There's a terrific analysis of the pre-strike motives of and stakes for both Northwest Airlines and its unionized mechanics in today's Wall Street Journal. Sadly, stories on the Journal's website are available to subscribers only, but we'll try to present the jist of the story--a more nuanced and comprehensive look than either of our rather timid-looking dailies has taken to date.

The subtext, by my read, is that Northwest is prepared to use the strike to crush the union altogether: "Now, though, a work stoppage is something the financially troubled airline actually might welcome."

In a nutshell, the story describes both sides as having little incentive to head off a strike, something that will occur August 20th, barring any progress in what have so far been acrimonious negotiations. The union, the Airline Mechanics Fraternal Association, says that the company hasn't budged a dime from its initial demand for $176 million in wage concessions and the reduction of the number of AMFA mechanics on the payroll to about one-fourth as many as a couple of years ago. The airline's position is that without $1.1 billion in wage concessions from all of its workers, bankruptcy is inevitable.

An effective strike, of course, could leave thousands of fliers stranded -- and Northwest bleeding all the way to bankruptcy court, where it has said it will go without big cuts in labor costs and pension relief from Congress. If Northwest can survive a strike, the mechanics will be doing the bleeding.

There is a chance -- as always in these showdowns -- that somebody will blink. The two sides plan to go back to bargaining next week, days ahead of the strike deadline. But thus far, Northwest hasn't moved from its initial proposal, which would cut $176 million a year from its AMFA payroll.

The carrier says it can't afford to tarry, after having lost $4 million a day in the first half of this year. It recently hired a new chief financial officer, Neal Cohen, who had bankruptcy experience at US Airways Group, and retained Seabury Group as its restructuring adviser.

This last paragraph is the story's most intriguing: Wage concessions and PR gambits aside, Northwest appears to be headed for the sheltering arms of bankruptcy court whether or not the mechanics agree to send their own jobs to China and Peru. And why not? Bankruptcy has done wonders for United, ridding it of its irritating promise to pay pensions to lifelong employees and slashing other obligations to its workers and creditors to the point where Northwest is now arguing that it can't compete unless it gets the same treatment. (Click here for our recent analysis of how bankruptcy has been very, very good for some airline executives.)

Could it be that Cohen's hiring is a harbinger of a similar fate not just for AMFA members but for all Northwest employees? (All of those not covered by the executive compensation plans, that is.) According to U.S. Securities and Exchange Commission documents, Cohen's executive compensation will certainly be United-sized: His salary is a measly $425,000 a year, but thanks to an exhaustive laundry list of bonuses, phantom stock grants, backdated retirement pay, long- and short-term cash and stock incentives, and generous benefits, his first year's compensation will likely total more than $1 million. If he screws up, his severance will include two years salary.

All for performing a job that in all likelihood will put taxpayers on the hook for hundreds of millions in bills Northwest no longer wants to pay. All of a sudden, Gordon Gecko looks like a rank amateur, huh?

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