NWA TA letter
03-08-2006, 08:31 PM
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NWA TA letter
ALPA/NWA RESTRUCTURING TENTATIVE AGREEMENT
Painful, but necessary - that is how I describe the tentative agreement (TA) reached by your Negotiating Committee on March 3, 2006. This TA was the culmination of nearly 3 years of effort by the NWA MEC and Negotiating Committee. If ratified by you, this TA will undoubtedly cause significant hardship for you and your families. On the other hand, an agreement is necessary for a successful restructuring of Northwest Airlines. The Negotiating Committee has unanimously recommended this TA to the MEC and to you for approval. While the MEC has not yet made its decision on whether or not to make a recommendation to the pilot group, the MEC has decided the pilot group will have a chance to vote on the TA by means of a membership ratification vote. The schedule for the vote and the roadshows will be published shortly.
Nearly three years ago, the MEC met near Brainerd, Minn. to review in detail the deteriorating financial state of Northwest. After a thorough analysis of the financial picture with our advisors from Peter J. Solomon Company and ALPA Economic and Financial Analysis, the MEC unanimously concluded that, in order for Northwest Airlines to survive, a financial restructuring of Northwest was required, including a significant reduction in pilot labor costs. The MEC also concluded that the best way to accomplish this restructuring was on a voluntary basis, outside of the bankruptcy process. This approach, modeled on our experience in 1993, would produce a solution with the best chance of long-term success and the least cost to employees. At the direction of the MEC, I spent the next year (and beyond) trying to convince the other unions at Northwest to participate in a voluntary labor cost restructuring outside bankruptcy. For a variety of reasons, the other unions were unwilling to engage in this effort.
By the spring of 2004 the MEC had determined that, with Northwest's financial condition worsening, we could no longer afford to wait on the other unions and that a change in strategy was needed. This led us to the Bridge Agreement, which was concluded in November 2004. As you will recall, the Bridge Agreement was designed to provide immediate cost relief to Northwest, was conditioned on restructuring of the Bank Term Loan and, based on the financial situation at the time, was calibrated to bridge us to a time when the restructuring of the other union contracts would be concluded. Unfortunately Delta's Simplifare strategy in early 2005 and higher fuel prices, among other things, eroded the company's finances much more quickly than projected in November 2004, with the result that the company filed for bankruptcy in September 2005.
The MEC and the pilot group then found itself in exactly the position we had foreseen 2-1/2 years earlier and had been trying to avoid ever since. We knew that, in bankruptcy, the sacrifice required of all employees, including pilots, would be substantially greater than what could have been achieved with an earlier, voluntary restructuring. We also expected that management would exploit the Chapter 11 process to greatly overreach with its demands. The experiences at United, US Airways and others would embolden management to attack our scope protections, benefits and work rules with vigor. Management's 1113(c) filing confirmed those expectations, with two areas particularly worthy of note - the demand to outsource all flying of aircraft with 100 seats or less and the elimination of much of our successor and fragmentation protection.
Faced with this aggressive and excessive 1113(c) proposal and a very short timeline to negotiate a solution and prepare a defense, the MEC and pilot group agreed to the interim agreement in November 2005. This interim agreement had the purpose of buying us the additional time to find solutions to the small jet and scope issues through negotiations while, at the same time, we built our bankruptcy court defense and created a credible strike threat.
Throughout 2005, the MEC was also focused on the threat to our Defined Benefit Plan. With substantial future funding requirements and the uncertainty of favorable legislation, the MEC decided in late 2004 that a freeze of the Plan was the most prudent course of action. This was accomplished, with your approval, effective February 1, 2006.
At the Jan. 5-7, 2006 special MEC meeting the MEC decided the company's scope proposals in general and the "NEWCO" demand for outsourcing of 100 seat jets in particular (and not to mention here the many other excessive demands by management) were issues over which the MEC would lead this pilot group to strike. This position was immediately communicated to management. In early January 2006, negotiations began in earnest, with most of the first month devoted to scope and small jet issues. By late January, Northwest began seeking a compromise to its NEWCO proposal and our NSTAR proposal. Progress was made. Issues started to be resolved. However, the number of issues and their complexity made for slow going.
The 1113(c) bankruptcy hearing commenced on Jan. 17, 2006. This hearing concerned Northwest's motion to reject the pilot contract in its entirety. Negotiations continued throughout the hearing, which concluded on Feb. 3, 2006. As it turned out, we were fortunate to have had Judge Allan Gropper assigned to the bankruptcy case. He proved to be skillful and patient as he pushed and prodded the parties to find their own solutions to the issues. A different judge may have prematurely issued a decision on the company's contract rejection motion, plunging the parties into almost certain conflict.
From ALPA's standpoint, the negotiating situation was as follows: (i) the MEC acknowledged Northwest's need to restructure the pilot contract, both to reduce its costs for financial reasons and to be competitive with its major competitors, primarily United, and (ii) the MEC believed that Northwest was overreaching in its restructuring demands and was seeking contract changes which were not necessary. Our goal in negotiations was to provide contract changes which matched Northwest's need, and no more, while at the same time resolving the key issues related to the future replacement of the DC-9 aircraft in a favorable manner. On March 3, 2006 the Negotiating Committee reached a tentative agreement on a restructured contract.
The MEC is taking some time to review carefully the details of the tentative agreement before deciding on whether or not to make a recommendation to the pilot group. The MEC's decision will be made at the regular MEC meeting scheduled for March 14-17, 2006. However, prior to adjourning the special meeting in New York City on March 4, 2006, the MEC voted unanimously to approve the tentative agreement for purposes of conducting a membership ratification vote. While there may or may not be differences on the MEC over the tentative agreement, all members of the MEC believe the pilot group should have an opportunity to vote.
This brings me to my own views of the tentative agreement. Because of my role as MEC Chairman and ex officio member of the Negotiating Committee, I stayed very close to the negotiations and participated in some sessions. As a result, I am familiar with the terms of the tentative agreement.
I recommend a vote in favor of the tentative agreement. My evaluation is that the Negotiating Committee did a remarkable job in stripping from management's 1113(c) proposal the overreaching and excessive demands we all found most onerous and in preserving the fundamental job security provisions of our agreement, including with respect to the flying of small jets.
In the near future, you will be receiving a complete listing and explanation of the contract changes. You will have an opportunity to review the tentative agreement in detail and I urge you to do so. I ask each of you to thoughtfully consider the tentative agreement in the context of the overall situation, and cast your vote as you see fit. It is important that all pilots take the time to both inform themselves and to vote on this critical matter.
The tentative agreement was achieved, in large part, by the unity of the pilot group. The strike vote results were remarkable given our current circumstances. The impact of the strike vote results should not be underestimated. The announcement of the results provided, in my view, the impetus needed to close the many significant issues remaining open on Feb. 28, 2006.
While this tentative agreement will bring hardship to pilots and their families, there are no reasonable alternatives. Northwest is a bankrupt company badly in need of restructured costs, including labor costs. Given Northwest's financial situation, agreements in place at our competitors and continued exposure to the 1113(c) process, this tentative agreement is the best option we have to protect our careers.
I believe you will find this tentative agreement addresses Northwest's needs, as well as several important pilot needs, without the unnecessary changes originally demanded by management. However, all of you, collectively, will be the judge of this tentative agreement and that is as it should be. I have great faith that you will make a decision which will be in the best interests of Northwest pilots.
Fraternally,
Captain Mark McClain
MEC Chairman
Painful, but necessary - that is how I describe the tentative agreement (TA) reached by your Negotiating Committee on March 3, 2006. This TA was the culmination of nearly 3 years of effort by the NWA MEC and Negotiating Committee. If ratified by you, this TA will undoubtedly cause significant hardship for you and your families. On the other hand, an agreement is necessary for a successful restructuring of Northwest Airlines. The Negotiating Committee has unanimously recommended this TA to the MEC and to you for approval. While the MEC has not yet made its decision on whether or not to make a recommendation to the pilot group, the MEC has decided the pilot group will have a chance to vote on the TA by means of a membership ratification vote. The schedule for the vote and the roadshows will be published shortly.
Nearly three years ago, the MEC met near Brainerd, Minn. to review in detail the deteriorating financial state of Northwest. After a thorough analysis of the financial picture with our advisors from Peter J. Solomon Company and ALPA Economic and Financial Analysis, the MEC unanimously concluded that, in order for Northwest Airlines to survive, a financial restructuring of Northwest was required, including a significant reduction in pilot labor costs. The MEC also concluded that the best way to accomplish this restructuring was on a voluntary basis, outside of the bankruptcy process. This approach, modeled on our experience in 1993, would produce a solution with the best chance of long-term success and the least cost to employees. At the direction of the MEC, I spent the next year (and beyond) trying to convince the other unions at Northwest to participate in a voluntary labor cost restructuring outside bankruptcy. For a variety of reasons, the other unions were unwilling to engage in this effort.
By the spring of 2004 the MEC had determined that, with Northwest's financial condition worsening, we could no longer afford to wait on the other unions and that a change in strategy was needed. This led us to the Bridge Agreement, which was concluded in November 2004. As you will recall, the Bridge Agreement was designed to provide immediate cost relief to Northwest, was conditioned on restructuring of the Bank Term Loan and, based on the financial situation at the time, was calibrated to bridge us to a time when the restructuring of the other union contracts would be concluded. Unfortunately Delta's Simplifare strategy in early 2005 and higher fuel prices, among other things, eroded the company's finances much more quickly than projected in November 2004, with the result that the company filed for bankruptcy in September 2005.
The MEC and the pilot group then found itself in exactly the position we had foreseen 2-1/2 years earlier and had been trying to avoid ever since. We knew that, in bankruptcy, the sacrifice required of all employees, including pilots, would be substantially greater than what could have been achieved with an earlier, voluntary restructuring. We also expected that management would exploit the Chapter 11 process to greatly overreach with its demands. The experiences at United, US Airways and others would embolden management to attack our scope protections, benefits and work rules with vigor. Management's 1113(c) filing confirmed those expectations, with two areas particularly worthy of note - the demand to outsource all flying of aircraft with 100 seats or less and the elimination of much of our successor and fragmentation protection.
Faced with this aggressive and excessive 1113(c) proposal and a very short timeline to negotiate a solution and prepare a defense, the MEC and pilot group agreed to the interim agreement in November 2005. This interim agreement had the purpose of buying us the additional time to find solutions to the small jet and scope issues through negotiations while, at the same time, we built our bankruptcy court defense and created a credible strike threat.
Throughout 2005, the MEC was also focused on the threat to our Defined Benefit Plan. With substantial future funding requirements and the uncertainty of favorable legislation, the MEC decided in late 2004 that a freeze of the Plan was the most prudent course of action. This was accomplished, with your approval, effective February 1, 2006.
At the Jan. 5-7, 2006 special MEC meeting the MEC decided the company's scope proposals in general and the "NEWCO" demand for outsourcing of 100 seat jets in particular (and not to mention here the many other excessive demands by management) were issues over which the MEC would lead this pilot group to strike. This position was immediately communicated to management. In early January 2006, negotiations began in earnest, with most of the first month devoted to scope and small jet issues. By late January, Northwest began seeking a compromise to its NEWCO proposal and our NSTAR proposal. Progress was made. Issues started to be resolved. However, the number of issues and their complexity made for slow going.
The 1113(c) bankruptcy hearing commenced on Jan. 17, 2006. This hearing concerned Northwest's motion to reject the pilot contract in its entirety. Negotiations continued throughout the hearing, which concluded on Feb. 3, 2006. As it turned out, we were fortunate to have had Judge Allan Gropper assigned to the bankruptcy case. He proved to be skillful and patient as he pushed and prodded the parties to find their own solutions to the issues. A different judge may have prematurely issued a decision on the company's contract rejection motion, plunging the parties into almost certain conflict.
From ALPA's standpoint, the negotiating situation was as follows: (i) the MEC acknowledged Northwest's need to restructure the pilot contract, both to reduce its costs for financial reasons and to be competitive with its major competitors, primarily United, and (ii) the MEC believed that Northwest was overreaching in its restructuring demands and was seeking contract changes which were not necessary. Our goal in negotiations was to provide contract changes which matched Northwest's need, and no more, while at the same time resolving the key issues related to the future replacement of the DC-9 aircraft in a favorable manner. On March 3, 2006 the Negotiating Committee reached a tentative agreement on a restructured contract.
The MEC is taking some time to review carefully the details of the tentative agreement before deciding on whether or not to make a recommendation to the pilot group. The MEC's decision will be made at the regular MEC meeting scheduled for March 14-17, 2006. However, prior to adjourning the special meeting in New York City on March 4, 2006, the MEC voted unanimously to approve the tentative agreement for purposes of conducting a membership ratification vote. While there may or may not be differences on the MEC over the tentative agreement, all members of the MEC believe the pilot group should have an opportunity to vote.
This brings me to my own views of the tentative agreement. Because of my role as MEC Chairman and ex officio member of the Negotiating Committee, I stayed very close to the negotiations and participated in some sessions. As a result, I am familiar with the terms of the tentative agreement.
I recommend a vote in favor of the tentative agreement. My evaluation is that the Negotiating Committee did a remarkable job in stripping from management's 1113(c) proposal the overreaching and excessive demands we all found most onerous and in preserving the fundamental job security provisions of our agreement, including with respect to the flying of small jets.
In the near future, you will be receiving a complete listing and explanation of the contract changes. You will have an opportunity to review the tentative agreement in detail and I urge you to do so. I ask each of you to thoughtfully consider the tentative agreement in the context of the overall situation, and cast your vote as you see fit. It is important that all pilots take the time to both inform themselves and to vote on this critical matter.
The tentative agreement was achieved, in large part, by the unity of the pilot group. The strike vote results were remarkable given our current circumstances. The impact of the strike vote results should not be underestimated. The announcement of the results provided, in my view, the impetus needed to close the many significant issues remaining open on Feb. 28, 2006.
While this tentative agreement will bring hardship to pilots and their families, there are no reasonable alternatives. Northwest is a bankrupt company badly in need of restructured costs, including labor costs. Given Northwest's financial situation, agreements in place at our competitors and continued exposure to the 1113(c) process, this tentative agreement is the best option we have to protect our careers.
I believe you will find this tentative agreement addresses Northwest's needs, as well as several important pilot needs, without the unnecessary changes originally demanded by management. However, all of you, collectively, will be the judge of this tentative agreement and that is as it should be. I have great faith that you will make a decision which will be in the best interests of Northwest pilots.
Fraternally,
Captain Mark McClain
MEC Chairman
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