Business > Northwest Exits Bankruptcy; Don't Expect More Leg Room

f the Major U.S. Airlines to Emerge From Bankruptcy

St. Paul, UNITED STATES: Northwest Airlines jets are shown at Minneapolis/St. Paul International Airport 30 May, 2006 in St.Paul, MN.  (Karen Bleier/ AFP/ Getty Images)

Northwest Airlines departed bankruptcy protection on Thursday, capping a 20-month reorganization aimed at making the nation's fifth-largest carrier competitive for years to come.

Northwest shares began trading on the New York Stock Exchange Thursday morning, with CEO Doug Steenland and other employees ringing the opening bell, marking the end of a wave of airline bankruptcies that began after the Sept. 11 attacks. The shares traded at $25.25 after being offered to unsecured creditors at $27.

Northwest has slashed debt by $4.2 billion, cut $400 million a year in the cost of its fleet, and trimmed unprofitable routes. It also cut $1.4 billion a year in labor costs.

The result is a slightly smaller, more efficient airline with some of the lowest costs among the major carriers.

Like the rest of the airline industry, Northwest has been on a roller coaster the past 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 around $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, the slowing economy, and the run-up to the Iraq war hurt business travel, and rising fuel prices hurt airline profitability.

Northwest was also hurt by the SARS scare in Asia, where it and UAL Corp.'s United Airlines are the two largest U.S. carriers. Eagan-based Northwest and Delta Air Lines Inc. both filed for bankruptcy protection on Sept. 14, 2005, putting four of the nation's seven largest carriers into Chapter 11.

At the end of 2005, Northwest's costs were higher than every other airline except U.S. Airways Group Inc., 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 U.S. Airways, Delta, and Continental Airlines Inc., though still higher than costs at AMR Corp.'s American Airlines and arch-competitor United.

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.

Joshua Freed can be reached at jfreed(at)ap.org

2007-06-03