With strike on, Northwest eyes bottom line

The first walkout at a major airline since 1998 comes as Northwest nears the possibility of bankruptcy.

As passengers start checking their bags on Northwest flights Monday, they will part of the first real test of both the striking mechanics' power and management's resolve.

Monday is the first day the airline will be flying a full schedule since Northwest's mechanics and maintenance workers walked off the job early Saturday morning. The weekend saw only a handful of disruptions, in part because management had more than 1,300 replacement workers ready to step in, but also because the weekend schedule is lighter than weekdays.

Analysts say that Monday will give the first indication of whether the strike has the potential to disrupt flight operations enough to force Northwest's management to reconsider its final offer. It could also show whether the combination of replacement workers and excess capacity in independent maintenance operations will undermine the strike completely, allowing the airline to run pretty much as usual.

This is the first strike at a major airline since 1998, when Northwest's pilots walked off the job for 20 days. It comes at a time when the so-called legacy carriers are in the worst financial shape in commercial aviation's history of more than 80 years. The majors are coping with unprecedented losses: Both United and US Airways are in bankruptcy, and analysts expect Delta and Northwest may follow soon.

They're all dogged by the same dilemma: the need to cut costs significantly enough to compete with low-cost carriers like Southwest and JetBlue, at the same time that jet-fuel prices are soaring. Northwest says it needs another $1.1 billion in cost savings in order to avoid a bankruptcy filing, and management is determined to get that from its own workers or, if necessary, new ones.

The better option?

"Northwest management believes that a replacement operation is actually more economically advantageous than the settlement they proposed," says aviation analyst Robert Mann of R.W. Mann & Co. of Port Washington, N.Y. "So if they're able to generate superior economics and run a reliable operation with replacement workers, there's literally no reason to bargain."

On the other hand, if the delays begin to pile up, flights are canceled, and passenger frustration becomes widespread, then Northwest will have to consider its other options. Mr. Mann believes that chief among them is bankruptcy, rather than giving in to the union's demands. Northwest has been "very consistent" about drawing the line on how much they're willing to spend on a maintenance operation.

This is why many analysts believe that Northwest's 4,400 mechanics and maintenance workers are between a rock and a hard place. Northwest is asking for cost savings of $176 million from the mechanics. The airline is proposing to reach that number by laying off half of them and cutting the salaries of those remaining by 25 percent.

The draconian nature of the cuts has inspired sympathy for the mechanics among many airline workers, who have watched their once-generous pay and benefits disappear as the industry undergoes a postderegulation transformation.

But that sympathy is also tempered by the aviation industry's new economic reality. Northwest's flight attendants, pilots, and other workers are crossing the picket line, and laid-off mechanics from other airlines are lining up to take their jobs.

"I give these guys at Northwest credit that they had the guts to do this. I really don't see that they had any other choice," says Ray Gardner, a mechanic who formerly worked at a major airline. "But I also have to agree that they might be shooting themselves in the foot. There are plenty of people to take those jobs, and I'd bet in six to eight weeks, these guys, the scabs they hired, are probably going to be just as good as the people they're replacing."

The Aircraft Mechanics Fraternal Association (AMFA), which represents Northwest's mechanics, insists that's not the case. It notes that Northwest has the oldest fleet in the industry and its union members have decades of experience keeping them aloft safely. It's predicting that the replacements won't be as skilled or competent. The airline disputes that, but nonetheless the Federal Aviation Administration has stepped up inspections at Northwest maintenance facilities to ensure work is being done properly.

The airline is also facing increased scrutiny from the media. While flight delays and cancellations due to maintenance problems are routine, every one is now being noted by the press whether it's strike related or not.

The longer it goes ...

Many aviation analysts agree that Northwest could have a rocky few days, but the longer the strike drags on, they believe the maintenance operation will become more stable.

"There's a lot of excess capacity in third-party maintenance. They'll have no problem maintaining these planes," says aviation expert Darryl Jenkins, a visiting professor at Embry-Riddle Aeronautical University in Daytona Beach, Fla. "It's not a happy time to be a mechanic."

Because of the challenges, some analysts also see this strike as a test of AMFA. Prior to 1998, the union represented only 1,500 mechanics. It then won the right to represent Northwest mechanics, taking them away from the International Association of Machinists and Aerospace Workers (IAM.) In 2003, it took away United mechanics from IAM as well. It now represents 20,000 mechanics.

"The attitude they have toward the workers is really refreshing. They believe in telling them all of the facts and letting them make up their own mind," says Aaron Gellman, founder of Northwestern University's Transportation Center in Evanston, Ill. "If they come out of this with glory in any sense, they're likely to steamroll IAM in a lot of other places than just United."

Mr. Gellman says that bankruptcy may be the way Northwest chooses to resolve the situation, even though it's an unpleasant option. Bankruptcy allowed both US Airways and United to significantly cut costs, abrogate some labor contracts, and default on their pension obligations, turning them over to the federal government.

"That's given [those carriers] a very significant competitive advantage," says Clint Oster, a transportation economist at Indiana University at Bloomington. "You don't want to go into bankruptcy. On the other hand, what those carriers were able to get in bankruptcy in some sense is a standard against which you've got to measure yourself."

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