This morning brings news that yet another airline wants to impose cost cuts on its employees. Welcome to the club, Northwest (OTC BB: NWACQ). You'll make good company for equally bankruptUnited, which is owned by UAL Corp., and Delta
Reuters reports that the airline has asked a bankruptcy judge to void the contracts of its various labor deals if employees do not agree to concessions. Big concessions. $1.4 billion worth of concessions, to be precise. And that's not including the pension freeze already in effect. (Northwest has more than $3 billion in unfunded pension obligations due between 2005 and 2007, according to Reuters.)
The rush to court is only the latest attempt to stop the bleeding at Northwest. The airline is expecting to lose more than $1 billion over the first nine months of 2005 and has run free cash flow negative for the past three fiscal years. Only in 2003 did it actually earn money on the bottom line, but that was because of about $800 million in other income, including a $200 million reimbursement from the Feds for security expenses.
There are excuses this time around, too. Northwest complained in its filing with the court that it has the highest labor costs in the industry, creating a competitive disadvantage. How many times have we heard that from other carriers? The answer, sadly, is too many to count.
Which means we're dancing on the precipice of the logical extreme: If bankruptcy protection gives Northwest -- or United or Delta, for that matter -- a competitive advantage, then everyone might gain that same advantage, right? Poppycock. Besides, having the Feds bailing anyone out is bad news competitively.
Isn't it time someone in authority said that we need to just let some of the weaker species in this terrifyingly rotten business die? I'd say so. Heck, Northwest, United, Delta, and even flighty resurgentUS Airways
Don't fly away yet! We've got related Foolishness for you:
- Maybe Delta is stepping up after all.
- Is JetBlue
(NASDAQ:JBLU) good or bad? You tell us. - It's bankruptcy for Delta and Northwest. Hooray!
- Hurricane Katrina did its share of damage to the airline industry.
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Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this story at the time of publication. He has family who are retired from United Airlines, however. You can find out what's in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.
