How Northwest hijacked Minnesota
Kurt Kulschar knew he was going to lose his job long before the layoff notice actually arrived in April 2003. Kulschar was a member of the Airline Mechanics Fraternal Association (AMFA) and an employee of Northwest Airlines, where he had watched co-workers get the notices for several years. He survived two rounds of layoffs--a big one following 9/11, and a smaller round the airline blamed on decreased traffic with Asia following the outbreak of SARS. Even though Kulschar, who is in his mid-30s, had been with the airline for eight years, he knew he didn't have enough seniority to survive a third round.
Strictly speaking, Northwest's contract with its mechanics doesn't allow for layoffs, so the airline had invoked a clause called force majeure. The provision allows for exceptions to the contract in the event that a "greater force" introduces unforeseeable and unavoidable complications: natural disasters, acts of God, and, unfortunately for Kulschar, war.
Technically, the Iraq War was the reason Kulschar was being laid off. But like most of the mechanics working in the hangars at Minneapolis-St. Paul International Airport, he believed the real issue was the financially troubled airline's plan to increase the amount of maintenance being done overseas by cheaper, nonunion workers.
There were things Kulschar could have done to avoid immediate layoff. He could have accepted reassignment to a less desirable Northwest facility, perhaps at New York's La Guardia airport. But it would only have postponed the inevitable, and maybe not for more than a few weeks. Kulschar's heart wasn't in it. "When it ended, I was nine months on the third shift," he recalls, most of it over a nasty winter. "It was cold, and when those hangar doors open, it gets colder. You're climbing around in aircraft, moving them; it's physically demanding."
Far from being glorified grease monkeys, airline mechanics are highly trained. Kulschar went $40,000 into debt to earn a bachelor's degree in aviation technology. He holds a commercial pilot's license, a dispatcher's license and, most important, an airframe and power plant license, which makes him personally responsible for the safety of the passengers on every plane he declares airworthy. It's such a heavy responsibility that federal law requires licensed mechanics to report safety issues, even repairs not completed to their satisfaction.
"I'm still accountable for repairs I did over the eight years I was there. There are 747s flying over the Pacific right now that I worked on. My A&P number is on them," he says. "A voice inside me said, 'That's it.' I saw the direction management wanted to take it. I saw where it was going. Northwest knew from the way the seniority list runs they lost a lot of good guys."
Northwest has laid off 4,100 AMFA mechanics since 2002--1,900 of them in the Twin Cities. That's 40 percent of the maintenance workforce, a much bigger hit than the airline's other unions have taken. Another 900 mechanics will be cut before the end of the year. Many of the laid-off technicians have found new careers. Their cross-training in electrical engineering, structural engineering, pneumatics, hydraulics, and other high-tech specialties has made them attractive to Minnesota's expanding medical device manufacturing industry, hospitals, refineries, amusement parks, and other employers. Unfortunately, few are earning anything near the $50,000 to $70,000 a year with benefits that they made at Northwest.
The losses don't just affect the mechanics. In the last 15 years, Minnesota taxpayers have repeatedly been asked to help the hometown airline. The rationale each time was to keep good jobs here. In 1991 and again in 1994, Northwest promised to maintain 17,883 jobs in the state and to create 2,000 more mechanics' positions in northern Minnesota in exchange for massive taxpayer-funded bailouts.
The vast majority of the mechanics' jobs never materialized, however, and the airline's employment is now well below the agreed-upon level. More than half of Northwest's current maintenance spending is with outside firms. With the demolition of one of its Twin Cities hangars later this year, even more work may be outsourced. The airline already performs heavy maintenance on its larger jets in China and Singapore. If industry analysts are correct, in coming years many more planes could be serviced in India and in Central and South America.
Northwest's argument is that without massive cuts to the cost of labor, it can't survive skyrocketing fuel costs, much less compete with low-cost competitors employing nonunion workforces. The airline notes that the trend is industry-wide and says its outside contractors are held to the same high standards it has for the mechanics it employs.
"We are forced to compete with low-cost carriers on price," says Northwest spokesman Kurt Ebenhoch. "We are also forced to compete on cost, and one way low-cost carriers achieve low costs is by outsourcing maintenance. Some outsource all of their heavy maintenance, and the standards are the same no matter who does it and where it's done."
But a growing chorus of voices, including AMFA, federal regulators, and the self-styled architect of the 1991 bailout, U.S. Rep. James Oberstar (D-Chisholm), say maintenance is the wrong place to look for fat to cut. Two federal studies have found that outside contractors don't get enough scrutiny.
At the same time, some state lawmakers are angry that the airline is back, asking for more. In late August, Northwest asked the Metropolitan Airports Commission to finance an expansion of the airport, relocating Northwest's competitors to the smaller Humphrey Terminal and giving NWA and its partners a monopoly on the main Lindbergh Terminal. Quickly and without soliciting public input, the MAC adopted the plan. When a Fridley senator proposed putting a moratorium on the expansion long enough to let the state examine the proposal in more detail, Northwest accused the mechanics' union of muddying the political waters.
Right now, Kulschar is the 243rd person on his union's recall list. By the time the three-year window in which he has the right to be hired back closes, his position is likely to be well over 1,100. Even on the off chance he gets recalled, Kulschar isn't sure he'd go. In addition to the psychological pressure that comes with making sure it's safe to fly every plane passing through the hangar, he doesn't want to contend with the instability.
"It was hard to see myself walking away from aviation," he says. "But if I really needed to turn a wrench on an aircraft, if that really defined who I was, there were things I could do. I just realized it's not going to get better any time soon."
AMFA is hardly the only entity to have accused Northwest of deception and political hardball in the past decade and a half. On May 3, 1991, the front page of the business section of the Atlanta Journal and Constitution carried a short news story lamenting Northwest Airlines' decision not to locate a new hub at the city's airport, Hartsfield. Following Eastern Airlines' bankruptcy, Northwest had been the only airline with any interest in taking over the idled jets, the maintenance hangars, and the 33 darkened gates. Reviving the hub would cost hundreds of millions of dollars, the newspaper reported, and the new tenant would find itself in direct competition with Delta, which flew 440 flights a day out of its Hartsfield hub.
It was a bleak year for the airline industry. The country was in the midst of a recession. Eastern had shut down in January of that year, and the writing was on the wall for Midway and Pan Am. America West, one of the most promising airlines to start up in the 12 years since deregulation, was operating in bankruptcy; Continental and TWA soon would, too. Northwest was in better shape, but not by much: Two years earlier a leveraged buyout by investors led by financiers Al Checchi and Gary Wilson had left the airline with a debt-to-equity ratio some analysts placed as high as 30 to 1. (Northwest wasn't the only airline affected by the leveraged-buyout frenzy of the late '80s. One airline analyst went so far as to tell the New York Times that "there were several airlines whose debt levels, combined with their business prospects, put them in worse shape than Northwest.")
In short, Checchi couldn't afford the new hub, industry analysts told the paper. It was simple economics, the officials explained. The U.S. Justice Department had agreed to let Northwest buy Eastern's gates at National Airport in D.C., and the airline hinted that it was working out a sweet deal for a maintenance facility in economically depressed northeastern Minnesota.
Northwest's coup, the paper hinted, was worthy of Machiavelli. "There would be some irony if Northwest has satisfied its East Coast ambitions through the Washington National hub," reporter Scott Thurston noted. "The airline used its professed interest in the Atlanta hub to get Eastern's gates at National in a bankruptcy auction last winter. The Justice Department said the National gates should go to Northwest, which was not the highest bidder, to keep a major 'spoke' of Eastern's Hartsfield hub in the hands of an airline interested in restarting Atlanta."
The flirtation with Atlanta was nothing compared with the political feat Northwest was hinting at. Even as Hartsfield's administrators were resigning themselves to selling off the C concourse one gate at a time, Minnesota Gov. Arne Carlson was ramming through legislation laying the way for $838 million in grants and loans from the state and the Metropolitan Airports Commission to Northwest. The rationale for the unprecedented public financing package: The airline would keep 17,883 jobs in Minnesota and create 2,000 more by building maintenance facilities in Duluth and Hibbing.
Not just any jobs, either, but well-paying union jobs with good benefits--jobs that paid enough to seem to justify economists' "multiplier effect" argument: that each new job in turn creates work for squads of grocery store clerks, pharmacists, car dealers, restaurateurs, and others who provide goods and services to the prosperous families, as well as industries that supply the maintenance facilities.
It took another eight months of bitter, acrimonious politicking, but in the end Northwest got its sweet deal. But by the time the checks were cut, the airline was in such a deep crisis that it not only began using the money to repay its creditors, it demanded and got $900 million in temporary wage reductions from its workers.
In December 1992, a month after the unions agreed to wage cuts, Northwest canceled a pending $3.5 billion order for 100 new Airbus jets. It was significant in part because those planes were projected to provide a critical portion of the traffic at Minnesota's new maintenance facilities. The writing was on the wall, but a year and a half passed before Carlson, Oberstar, and airline officials announced they had drastically downscaled the 1991 agreement. Under the terms of the revised deal, Northwest would build only a scaled-down repair station in Duluth, and turn the engine overhaul facility planned for the Iron Range into a reservations center. The number of jobs to be created in northeastern Minnesota fell from 2,000 to 950. And only 350 of them were well-paid mechanics' positions.
The new deal granted the airline a number of potential outs. Northwest would not be prevented, it said, "from reducing or changing its Minnesota employment, operations, or facilities (other than the location of NAI's corporate headquarters) in response to force majeure, business conditions, technological changes, and statutory or regulatory changes."
According to files kept by the Minnesota Legislative Reference Library, Northwest's reentry into the stock market in March 1994 kicked off three consecutive years of record profits. In December 1997, Northwest announced it would send its jets to a French overhaul facility. The company also paid off its loan from the MAC.
Northwest also maintains that it has complied with the agreement when it comes to job creation and retention. "The agreements allow the company to reduce Minnesota employment in response to changing business conditions as long as such reductions are proportional to Northwest's domestic systemwide employment reductions," a company vice president explained in the employee newsletter.
The lawmakers questioning Northwest's current airport expansion plans aren't ready to concede that the airline has lived up to either the letter or the spirit of the deal. To date, they note, the company has paid only interest on the state's portion of the aid package. Northwest still owes Minnesota and the MAC $400 million, part of it financing for a past airport renovation.
Airlines have long contracted out at least some maintenance work. According to congressional reports, carriers and cargo companies outsourced 37 percent of their maintenance work in 1990. By 1996, the figure had grown to 46 percent. Today the amount of work contracted out varies: After making a decision to bring much of its contract work back in-house, American outsources 20 percent; Alaska Airlines and America West hire out 79 and 77 percent, respectively.
According to federal statistics, Northwest outsourced 31 percent of its maintenance in 1996. By 2002, the level had risen to 44 percent. One of the things the company hopes to win in the current contract negotiations with the technicians' union, the Airline Mechanics Fraternal Association, is the right to send out even more work. Right now some Northwest planes are overhauled in China and Singapore. If the airline wins the right in current contract negotiations to increase the proportion of maintenance dollars it spends with contractors, AMFA officials expect to see work go to repair stations in Latin America.
Outsourced maintenance work can be 30 to 40 percent cheaper than work performed by in-house mechanics. Some of the savings reflect the fact that it's cheaper to use foreign labor or nonunion or unlicensed domestic technicians. Some of the savings arise from efficiencies. A repair station that works only on one kind of plane or one kind of repair invests in fewer parts and tools, for instance.
Increasingly, mechanics employed directly by airlines are responsible for inspecting in- and outbound planes, making small or immediate repairs, and sending them on their way. Much of what's being outsourced is specialized work, including the periodic major overhauls legally required on commercial aircraft. (Commercial aircraft have to be torn apart and rebuilt at regular intervals, a process that takes weeks and costs several million dollars.)
"While costs for outsourced maintenance are lower than for in-house maintenance, quality and safety are not compromised," Northwest executives explained in the employee newsletter "ePassages." "Just as Northwest's foreign passengers and competitors often represent multinational corporations, Northwest's international maintenance vendors are large, worldwide operations, performing maintenance for many large airlines. Northwest selects them because of their world-class management, control systems, and technical ability. These vendors receive stringent oversight from Northwest, the Federal Aviation Administration (FAA), and local regulatory authority such as the JAA in Europe."
Two federal agencies, Congress's General Accounting Office and the Department of Transportation's Office of the Inspector General, have been highly critical of the amount of oversight U.S. officials and airlines have over maintenance contractors--especially overseas repair stations. The Federal Aviation Administration certifies maintenance facilities, but studies by both agencies have shown that FAA inspections are few and far between. When inspectors do visit repair stations, they frequently miss safety violations.
Nine years ago, a maintenance contractor at Miami International Airport improperly stowed oxygen generators in the cargo hold of a ValuJet DC-9. The generators caught fire and the flight crashed into the Everglades, killing 110. The National Transportation Safety Board faulted the FAA, which vowed to make changes. But a July 2003 Transportation Department report found dramatic disparities in the oversight of in-house maintenance operations versus that applied to contract facilities.
In fiscal year 2002, the FAA conducted 400 inspections of in-house maintenance facilities at one major airline, but just seven inspections at the airline's contractors. (The report did not identify the airline, but noted that it outsourced 44 percent of its maintenance.) The FAA is required to inspect non-airline repair stations just once a year; because of the logistics involved with performing an inspection in another country, regulators' visits to foreign repair stations are never unannounced.
"When we visited 12 domestic and 9 foreign repair stations, we identified problems such as mechanics using incorrect aircraft parts and outdated maintenance manuals during repairs, and performing improper calibrations of tools and equipment at 18 of the 21 (86 percent) repair stations reviewed," the inspector general's report notes. Inspectors also reported that 88 percent of files reviewed at overseas repair stations were "incomplete or incomprehensible," that some foreign repair stations subcontracted work out to facilities that were not certified by the FAA, and that the FAA had no idea how much work was being done by the foreign facilities. (A separate investigation, undertaken by reporters for the Charlotte Observer, found that despite the trend toward increased outsourcing, inspections of outside repair stations actually fell by 20 percent between 2000 and 2002.)
In addition to poor oversight, sending maintenance work overseas or hiring nonunion domestic contractors raises other safety issues. Often, licensed technicians are used only to supervise unlicensed mechanics. Unlike U.S. mechanics who work directly for airlines, mechanics at repair stations don't undergo FBI background checks or drug and alcohol screening.
In 2002, AMFA claims, a mechanic at the Singapore facility under contract to Northwest was arrested for suspected al Qaeda ties. "Northwest said that this arrest was on the military side of the base, while its planes are repaired on the civilian side," says AMFA National Director O.V. Delle-Femine. "But we do not find this sufficiently reassuring; presumably security is even tighter in the military operation."
Last month 27 alleged illegal immigrants were arrested at a Greensboro repair station. Six were full-time employees of the contractor, and the rest worked for a temp company. (Three turned out to be in the country legally, but are still being held for other reasons.)
Attorney Lee Seham represents AMFA, and often defends mechanics who have been fired or disciplined for refusing to cut corners. Without the FAA or a union backing them, Seham fears technicians at outsourcers won't blow the whistle on shoddy maintenance.
"As a labor attorney, I can tell you that a critical element of the U.S. airline industry's safety has been American freedom and rule of law," he says. "Even at major airlines, with strong union environments, mechanics have been disciplined and terminated for refusing to release un-airworthy aircraft into revenue service."
There's a perpetual tension between aviation technicians and the people who employ them, and for good reason. Airline managers want the planes fixed--but they also want them back out of the hangar quickly enough to stay on schedule. Mechanics say they often feel pressure to "pencil-whip" a plane, to sign its maintenance card too hastily.
"If 'pencil-whipping' happens in the USA, you can imagine what happens in the context of authoritarian regimes where a growing share of aircraft maintenance is being performed," Seham says. "You cannot pretend that a Chinese aircraft technician, or one in El Salvador, for that matter, has any choice but to do what he is told."
In 1994, Indiana and Indianapolis shelled out $800 million to construct a huge, new, 248-acre, state-of-the-art maintenance facility for United Airlines at Indianapolis International Airport. In exchange, United was supposed to create 6,300 jobs. The airline hired only half that many people before abandoning the facility in 2003. The state and city, which now own it, have been scrambling to fill the empty hangars.
After agreeing to overhaul the facility and coming up with a series of incentives costing as much as $15,000 per job, Indiana taxpayers finally lured two new tenants, both maintenance outsourcing companies, according to the magazine Overhaul and Maintenance. In addition to airline contracts, one of the two companies hopes to find machine shop, sheet metal, and composite work. Even though the new jobs pay about half as much as the old ones, the first job fair staged by the new tenants attracted 3,600 résumés. According to Airline Business, many of the applicants were former United workers.
Back when former Governor Carlson and Representative Oberstar proposed the Northwest-Minnesota deal, Art Rolnick, senior vice president of the Federal Reserve Bank of Minneapolis, was one of the first and most vocal skeptics. Rolnick asked Al Checchi why the state should finance the bailout. It was obvious what was in it for Northwest, he says. The state's interest rate was then 8 percent, whereas the market would have charged a corporation in as poor shape as the airline 20 percent. "Checchi just kept saying, 'It's a very good deal, it's a win-win,'" he recalls.
In the end, not only didn't the Northwest bailout create 2,000 jobs, it served to discourage competition, Rolnick adds. "The biggest problem with what we did is it gave Northwest a monopoly," he says. "A fortress hub makes for significantly higher prices and makes us more vulnerable. [Competition] would have made the [1998 pilots'] strike less debilitating. That the state has allowed this monopoly is very questionable."
Rolnick never believed the talk that Northwest would abandon Minnesota, a bit of scare rhetoric widely circulated by proponents of the state aid package at the time. "We have a vibrant economy and obviously the notion that we would not have planes coming in and out isn't true. Someone would have bought it," he says. "What matters is that we have an airport."
Northwest's unpaid loan notwithstanding, Minnesota's political leaders show signs of lining up to throw money at the airline once again--even though the resulting enhancement to Northwest's monopoly position would likely do local air travelers no favor in terms of prices. In October, Northwest proposed an $860 million plan to expand the airport dramatically in the next 15 years, and to give a complete monopoly on the main terminal to Northwest and its business partners KLM, Delta, Mesaba, and Continental.
As laid out in "Vision 2020," the expansion would "simplify airport access by moving all non-SkyTeam airlines from Lindbergh to the Humphrey Terminal in one move." Within the next two years, Northwest's competitors would be relocated to the smaller Humphrey terminal, which would gradually be expanded by 12 gates. The MAC would also build 46 new gates at the Lindbergh terminal and, eventually, a 400-room hotel.
The MAC, which adopted the plan with virtually no public discussion, is promoting "Vision 2020" as an engine for economic growth. Commission documents claim that the expansion would create 40,000 permanent "direct, indirect, and induced jobs" for the region by 2020 and an increase in "personal income" of $2.5 billion. The expansion would be paid for by funds the MAC projects collecting between 2004 and 2030.
The plan's critics say the MAC is just manipulating numbers to produce a rose-colored picture. "Indirect and induced" jobs are theoretically created by increased spending on the part of new airport workers and by a high degree of presumed overall growth to the local economy sparked by airport improvements. But it bears noting that the MAC's forecasts are based on pre-9/11 levels of growth in traffic. During past airline industry slumps, Northwest has balked at paying the fees the MAC anticipates using to underwrite the expansion. If that occurs, metro area taxpayers could be left paying the bill.
And if the mechanics are right, none of those 40,000 jobs would go to aircraft technicians. Twenty-five of the new gates would be built on ground vacated by tearing down a Northwest aircraft maintenance facility, to be replaced with a new Concourse H. (The other 21 gates would be added to the G Concourse.) Northwest has said that the repair station, known as Building B, will come down whether the expansion proceeds or not.
Angry that taxpayers are being asked to back a plan that would contribute to the outsourcing of their jobs, the mechanics last year began talking to state lawmakers about slowing the MAC's pace. Most of the organization's 15 commissioners are appointed by the governor; the chair is Vicki Tigwell, a Pawlenty associate and the ex-wife of disgraced gubernatorial candidate Jon Grunseth. (Pawlenty and Tigwell both came under fire two years ago for their involvement with a long-distance telephone service provider accused of deceiving consumers in seven states.)
Pawlenty was quick to go on record as calling "Vision 2020" vital to Northwest's continued health. But a number of lawmakers on both sides of the aisle aren't so sure. "It took 30 years for us to spend that much on light rail. The MAC is proposing to spend that much in a matter of months," says Sen. Satveer Chaudhary, a Fridley DFLer. "It's a very secretive organization that won't respond unless pushed, and an organization that's not accountable to anyone but the governor, even though its work has a statewide effect."
In January Chaudhary introduced legislation to put a moratorium on the expansion plan and Building B demolition pending public discussion--including a review of Northwest's compliance with past promises to the state and MAC. Northwest refused to attend the bill's first few hearings, arguing that it was an improper forum for airing a labor dispute. The Senate Transportation Committee passed the bill and voted 12-1 to issue a subpoena to Northwest CEO Doug Steenland.
Four days later, former Sen. Doug Johnson registered as a Northwest lobbyist. A DFLer from Tower, Johnson played a major role in pushing through the '91 and '94 bailout deals. Days after his appointment, another Senate committee voted to table the bill.
No one from Northwest was present the night the bill died, but the case for expansion was instead pressed by Vicki Tigwell. "Northwest has this outstanding $270 million loan from '91 which says that Northwest's hub has to be here," says Ted Ludwig, president of AMFA local 33. "Tigwell said that some economic development authority somewhere could come in and pay that loan off on behalf of Northwest and then they could leave. Tigwell also said that the MAC has no control over other airlines, that they could merge into one big airline and we'd have no control over it." (Tigwell's comments may prove particularly resonant in light of rumors that one of Northwest's long-term plans is a wholesale merger with the U.S. airlines in its "SkyTeam" alliance, Delta and Continental.)
When Steenland appeared before the Transportation Committee on April 12, he defended outsourcing but failed to mention that 600 more mechanics would be laid off the next day. The company was grounding 30 older DC-9s and, as a consequence, closing three maintenance lines--one here and two with outsourcers. The planes in question are gas-guzzlers and require more intensive maintenance than others in the company's fleet.
Steenland also breezed past news that two days before, part of a reverse engine thruster weighing 200 pounds had fallen off a Hawaii-bound Northwest DC-10 and into a field in Inver Grove Heights. Steenland told the senators that union mechanics had installed the part.
The episode angered AMFA's Ludwig, who was suspended from his mechanic's job in March for publicly displaying parts he claimed had fallen off another plane as a result of shoddy outside maintenance. Union mechanics did install the reverse thruster, one of the components that slows airplanes on landing, but he says its maintenance had been outsourced to a repair station in Texas. "The bolts on those things have been known to wiggle loose--something we know," he complained. "But that plane's not ours to maintain anymore."
No one questioned Steenland, however. "The Senate bowed to Caesar yesterday," Chaudhary complained. "At the moment it seems government isn't going to do anything for these workers and about Northwest's monopoly."
Outsourcing not-withstanding, a shortage of mechanics is predicted by the year 2008. If this sounds paradoxical, consider the effect of the elimination of 40 percent of a union shop: When the next round of layoffs is completed, the average age of a union mechanic at Northwest could go from 53 to 62. At that age, technicians aren't going to retrain, like Kurt Kulschar.
Nor are they anxious to see their sons and daughters follow in their footsteps. Airplane mechanics are like cops and firefighters in that multiple generations often follow the same career path. These days, veteran mechanics are urging their kids to run the other way.
In the wake of the Northwest bailout, Minnesota colleges scurried to beef up aviation technology training programs. Enrollment peaked during the 1994-1995 school year. Thief River Falls had more than 500 students that year; a program in Winona was overflowing, too; Minneapolis Community and Technical College had more than 300 students, according to George Hoxie, faculty coordinator of the MCTC aircraft technician program. "We overshot," he says. "Northwest was gonna build in Duluth and Hibbing, the beer was always cold, and there was always apple pie."
Hoxie's program, run by MCTC but located at Flying Cloud Airport in Eden Prairie, now has 19 students. Enrollment at Winona is about the same, while Thief River Falls has about 40 students. Adapting to the changes in the industry isn't cheap or easy. The training programs need to have an idea who will be hiring graduates several years out. They need to have the right aircraft for students to work on, the right tools and other equipment and, of course, space and teachers.
Hoxie's hoping for a class of 18 to 20 next fall; he has no doubt the market can absorb that many graduates. "There is a very strong corporate aviation community in Minnesota that acts as a buffer. Even when Northwest isn't hiring or is laying off, we can place our graduates. We just have to change our target," he says. "Minnesota is unusual in that Northwest is such a driver in this market, such a big dog."
The outlook is especially bleak for the mechanics, but Northwest hopes to cut wages and benefits for most of its employees. The airline's stated goal is to carve $1 billion a year from its payroll. But Northwest probably will not be reducing executive compensation as part of that fight.
In October, Northwest CEO Richard Anderson announced he was stepping down to take the number-three job at UnitedHealth Group in Minnetonka. His compensation from 2001 to 2003 at Northwest had totaled $6.5 million. (Three other executives, including Anderson's successor, Steenland, earned almost as much.) Northwest was poised to continue to lose money, however, while UnitedHealth's fortunes seem limitless: According to Star Tribune accounts, revenues are expected to reach $45 billion this year and $50 billion next year. Its CEO earned $94.2 million in 2003.
And then in March, late on a Friday afternoon after the stock market's closing bell had rung, Northwest announced that Al Checchi was stepping down from its board of directors. During the previous three months Checchi had sold 1.5 million of his shares in Northwest for $11 million. He still owns 3.26 million shares.
Doug Henwood is the editor of the Left Business Observer and a longtime critic of the 1978 deregulation of the airline industry. He doubts that the potential fixes being discussed by the industry and policymakers would make much of a dent in commercial aviation's problems. "On the one hand, there's pressure toward monopolization and price-gouging. But also at the last minute they want to fill those empty seats, so we have these fare wars," he says. "Bankruptcy, lowering wages, and getting rid of debt: I think we will see some combination of that. But this has been the story since deregulation.
"The whole rationale for deregulation was that fares were too high and they were restricting availability," he argues. "But fares didn't decline nearly as much as people thought." Federal statistics show that the financial hemorrhaging since deregulation has been so bad that the industry is very close to having lost money over the entire history of commercial aviation, he says.
"This is so far off the political agenda it's hysterical to even suggest it, but we have to think about why it was regulated in the first place," Henwood continues. "No one will acknowledge that this industry is extremely messed up and has been a disaster. No one is willing to say as much. But an industry that is unable even to withstand a fuel-price spike is in real trouble."
Reporting contributed by City Pages news intern Em Murphy.
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