Crisis Averted?

It appears Judge Allan Gropper's decision to forestall ruling on Northwest's ability to reject its current contract with its pilots -- in hopes the airline and its pilots would come to an amicable solution -- paid off Friday, as airline management reached a tentative deal with members of the Air Line Pilots Association over a new contract that could save the bankrupt airline $358 million annually.

If the agreement is approved by union management and its voting membership, the settlement would end the airline's attempt to toss out its current contract. It would also avert the pilots strike that would have almost certainly occurred if Northwest had rejected those contracts.

It's not a done deal yet -- but it gave all parties reason for optimism after an arduous negotiations process that could be described as "contentious," at best.

"The tentative agreement is a painful but necessary part of a successful restructuring of Northwest Airlines," said Mark McClain, chairman of Northwest's ALPA unit that represents about 5,000 pilots.

Earlier this week, Northwest also reached a tentative deal with its flight attendants, agreeing to drop its requirement for more foreign attendants on overseas flights in exchange for $195 million in annual savings.

In order to gain approval for the deal, the pilot union's negotiating committee plans to run it by the labor group's membership, who will then decide whether to send it on to rank-and-file pilots for a vote.

Standard & Poor's credit analyst Philip Baggaley said the pilot agreement would be a "major step forward" for  Northwest's effort to emerge from Chapter 11 -- if it is ratified.

"The pilots are the last major labor group to reach a preliminary agreement (except for striking mechanics who have been replaced) and the largest source of labor savings being sought by the airline," said Baggaley to Reuters.

In a statement, Northwest said its turnaround plan also includes reduction in capacity, which would cutback or reduce service to marginal markets. The airline is also taking steps to reduce aircraft ownership costs.

Still unresolved is whether the airline will eliminate pension plans for its workers.

FMI: www.nwa.com, www.alpa.org