A tentative labor accord reached last month between Northwest Airlines and the Air Line Pilots Association includes scope-clause language that would allow the airline to establish a new regional subsidiary, but only to fly airplanes certified to carry between 51 and 76 seats. The compromise represented a victory of sorts for both sides, as Northwest succeeded in expanding the scope of its regional network while the pilots maintained their right to fly narrowbody jets certified to carry more than 76 passengers.
Under the deal, the new regional airline could fly as many as 90 jets; however, for each airplane it assigns to the unit, Northwest would have to place an airplane certified for 77 passengers or more with the mainline and staff it with Northwest Airlines pilots. Furloughed Northwest pilots would also win first rights to all flying jobs created by the new regional subsidiary.
Meanwhile, independent regional affiliates such as Pinnacle Airlines and Mesaba may add up to 55 jets certified to carry between 51 and 76 seats, although Northwest can increase the limit by adding jets with 77 seats or more. Under the deal, furloughed Northwest pilots would gain access to half of the new jobs created by any more regional jets Northwest leases to its regional affiliates.
In February Northwest pilots threatened to strike if management followed through with its original plans for a new subsidiary tentatively dubbed NewCo. That proposal called for a fleet of one hundred five 77- to 100-seat jets staffed with pilots and flight attendants drawing salaries typical among regional airlines flying 50- to 70-seaters. That meant pilots now flying Northwest’s DC-9s would have seen their salaries slashed in half while they lost pension and 401(k) benefits. Northwest had threatened to ask a bankruptcy court judge to vacate its union contracts if the employees did not agree to its original terms. If that happened, said the union, it would send strike ballots to its members.
Under the tentative deal, Northwest Airlines pilots would take a 24-percent pay cut and forgo raises until 2008, at which time they would get a 1.5-percent raise. The same pilot group, 700 of whom remain on furlough, accepted a 15-percent cut in November 2004.
Although it remains unclear how the new agreement might affect Pinnacle and Mesaba Airlines, it does raise the possibility that one or both of those airlines could fly 70-seat regional jets under the Northwest Airlink umbrella. Northwest Airlines currently subleases 124 Bombardier 44- and 50-seat CRJs to Pinnacle Airlines, as well as Avro RJ quad-jets to Minneapolis-based Mesaba Airlines.
However, over the past six months the major airline has terminated leases on 12 of Mesaba’s Avros, grounded 11 of its Saab 340s, halted CRJ deliveries to both Pinnacle and Mesaba and, most recently, turned the financial screws on its Airlink partners by asking for bids from several regional airlines to fly RJs carrying up to 76 seats.
In a report issued last month, JP Morgan analyst Jamie Baker said the deal does not bode well for Pinnacle and Mesaba, despite the prospect of limited 70-seat jet flying. “While scope language may allow for 70-seat outsourcing to independent contractors, we believe Northwest will substantially favor its subsidiary over Pinnacle and others,” said Baker, who estimated the wholly owned subsidiary would fly some 50 dual-class, 76-seat CRJ900s, while the mainline replaces its DC-9s with Embraer 190s.
