Northwest Says It May Need $1.1B In Concessions as Fuel Costs Rise

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Northwest Airlines, the fourth largest American carrier, may need more than the $1.1 billion in annual worker concessions it’s been seeking as it contends with rising fuel costs, Chief Executive Doug Steenland said.


“We’ve indicated that given the price of fuel and changes and other factors that we may need to revisit” that amount, Mr. Steenland said in an interview on Wednesday. “I’m not prepared to say anything beyond that today, but I think that’s a reality and I think every airline is facing that.”


Northwest has repeatedly said this year that it needs at least $1.1 billion in annual labor savings to avoid bankruptcy. The St. Paul, Minn.-based company disclosed in a regulatory filing this month that it may need savings beyond that goal.


The airline is keeping its planes flying amid a strike by mechanics and aircraft cleaners that began August 20. Workers walked off the job after talks broke down over the company’s plan to cut about 1,900 jobs. Northwest sought concessions of $176 million from the mechanics group and is still negotiating with unions for flight attendants, bag handlers and pilots.


When asked whether the company can get more concessions fast enough to avoid bankruptcy, Mr. Steenland said: “We hope so. I’m not going to make any predictions. That’s our goal.”


The price of jet fuel has risen 55% this year as crude oil, from which the fuel is refined, reached record levels.


Jet fuel has jumped 14% this month.


Fuel is Northwest’s second-biggest expense, after labor. The company said in its second-quarter filing with the Securities and Exchange Commission earlier this month that fuel may cost the airline $3 billion this year, which would be an increase of $800 million, or 36%, from last year.


The carrier had stockpiled $2.64 billion in cash and short-term investments as of June 30 to help weather losses, which have totaled $2.5 billion since the end of 2000.


“Northwest still has a couple more years to try to sort out its problems,” an analyst at CreditSights, Roger King, said in an interview yesterday.


Northwest is the only major American carrier that hasn’t won concessions from most of its unions in the past four years. Pilots and managers have agreed to $300 million of the $1.1 billion in cuts sought. Yesterday, the company’s shares fell for the first time below the $5.38 they reached on August 19, the day before the strike. It has declined 53% this year.


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