The Mail Won't Fly
9/04/03

Nearly 77 years ago, Northwest Airlines took to the sky with a "fleet" of two rented open-cockpit biplanes — a Thomas Morse Scout and a Curtiss Oriole — to ferry mail from the Twin Cities to Chicago.

Mail — not passengers — is what got most old-line carriers like Northwest up and flying.

In 1927, Northwest carried a mere 106 passengers; in 2002, it carried 52.7 million.

Northwest also flew mail to the Wisconsin cities of Green Bay, Fond du Lac, Oshkosh, Neenah-Menasha and Appleton and other points. It got noticed in Washington, D.C. In 1929, the federal government even adopted Northwest's "U.S. Air Mail" insignia for all air mail carriers.

Now, Northwest is poised to exit the domestic mail business, saying it's no longer worthwhile financially, though the airline will continue to carry international mail.

The termination date for ending its contract to carry domestic mail is undetermined at this time, Northwest said Wednesday.

The International Association of Machinists, the union representing Northwest's ground workers, expects 100 to 200 layoffs as the airline stops handling domestic mail.

"We don't know how many,'' said IAM District 143 secretary-treasurer John Massetti. "But there will be some members affected. We've been meeting and talking with Northwest about how this will impact them.''

The problem is reduced rates that the U.S. Postal Service put into place June 28, as well as a sharp decline in the airline's domestic mail volume, said the Eagan-based carrier.

"The reduced prices and traffic make it unattractive to continue carrying the U.S. mail domestically," Jim Friedel, president of NWA Cargo, told employees in a recent internal airline communication.

Northwest's decision to withdraw from its Postal Service contract to carry domestic mail also applies to flights by Northwest affiliates Mesaba and Pinnacle airlines. Both airlines carried mail under Northwest's contract with the Postal Service.

But will your missives to Miami, letters to L.A. and other snail mail move more slowly with Northwest's exit from the domestic mail business?

"Absolutely not," said Postal Service spokesman Mark Saunders. "We have contingency plans in place. The changes will be transparent to our customers."

Postal Service spokesman Jim Stanley said the USPS is working on an impact analysis that would cover the territory which only Northwest services.

"We do have a partnership with Federal Express, which will be able to carry some of the mail," he said.

The Postal Service uses planes to move just 10 percent to 15 percent of the 100 billion pieces of first-class mail handled annually, said Saunders. Last year, it paid airlines about $370 million to transport mail.

Bureau of Transportation Statistics reports indicate Northwest carried 30.1 million pounds of mail overall in the first quarter of this year. Northwest says about 10 percent of that originated from the Twin Cities area.

International mail is unaffected by postal service efforts to cut costs. In 2003, Northwest expects to carry 29 million pounds of international mail. That would equal 464 million 1-ounce letters.

Neither Northwest nor the Postal Service would disclose what Northwest is paid to carry mail. New rate information is covered by a confidentiality clause with the USPS, said airline spokeswoman Mary Stanik.

Until this year, airlines transported domestic mail at a flat rate established by the Postal Service.

Mail loads were shared equally among carriers that served the same routes. But that meant there was no incentive for airlines to provide superior service, the USPS claims.

This year, the Postal Service had airlines bid for contracts to carry mail.

Their value hinged on an air carrier's price, capacity and service performance.

"As a customer of the airlines, we expect to receive the best possible service at the lowest possible rates, so our customers — America's postal ratepayers — receive the same," said USPS vice president Paul Vogel this past April.

When its new contract was implemented, Northwest said its domestic mail volumes fell 40 to 50 percent from 2002 levels.

Wage, work rule and other concessions by employees at American, United and US Airways make similar givebacks at Northwest Airlines inescapable.

That's what NWA's top executives argue in the latest edition of the airline's employee newspaper, Passages.

The company casts its special report in the paper as an effort to educate employees about what it calls the new realities of the U.S. airline industry, which has lost nearly $20 billion in the past two years.

But union leaders dismiss it as a misleading propaganda effort intended to soften up employees for NWA's pitch for nearly $1 billion in annual labor concessions.

For the most part, Northwest's union employees now make more than their peers at other carriers, the company contends.

"In today's deregulated marketplace, consumers are unwilling to pay the fares that would be required to continue to support current (Northwest) work rules, wages and benefits," NWA CEO Richard Anderson and president Doug Steenland wrote.

NWA has lost $1.6 billion and shed 17,000 employees since the start of 2001. To try to get back in the black, the Eagan-based carrier says it needs the big wage and other givebacks from its unions.

Unions disputed NWA's wage comparisons, saying they were incomplete and misleading. Mollie Reiley, trustee of the flight attendants union, lamented that NWA's charts showed her union members are paid less than their peers at Continental, Delta and Southwest.

"I don't get it," she said. "And I'd expect to get paid more than JetBlue."

Mismanagement, not em-ployee pay, got Northwest in trouble, argued Jim Atkinson, president of the mechanics' union.

"Northwest is blaming everyone but themselves: Sept. 11, SARS and, most destructively, their own employees," Atkinson said. "Yes, the airline industry is in a very difficult period. But it's not all about employee compensation."

The pilots' union charged Northwest excluded key elements from pilot compensation figures.

"Northwest management only used hourly pay," said union spokesman Will Holman. "If they included total compensation, including stock options, profit sharing and 401(k)s, you would see that Southwest pilots' total compensation is more than Northwest pilots'."

Holman noted that NWA pilots can't fly more than 75 to 81 hours a month. And they're only paid for their time when a plane is moving. Preflight checks and other duties are not counted as work time.

Union leaders decried Northwest's contention that its executives, managers and other salaried employees lag behind their counterparts at other carriers. The company said that total compensation for mangers is 11 percent below the industry average; directors, 38 percent below; officers, 37 percent under; executive officer, 58 percent.

"They still want everyone to notice they're not the highest-paid airline executives," she said. "That's not the issue."

Though Northwest's latest communication with its workers seems to have further angered employees, Anderson said he hopes to avoid the discord that has wracked American and other airlines as they pushed for labor concessions.

"Northwest is too good an airline, run by the industry's best people, to lose its competitiveness and its future," he wrote.

Remember Last Time IAM said ok to pay cuts!

This was in St.Paul Pioneer Press February 25, 1993

Northwest execs paid top dollar for a money-losing ’93 company generous to officers while workers pay cut, bankruptcy loomed

The top five executives at Northwest Airlines received bonuses totaling more than $2.3 million in 1993, a year in which the company threatened to file for bankruptcy protection if workers did not agree to pay cuts.

John Dashburg, Northwest president and chief executive officer, received more than $1.6 million in pay bonuses during the year, according to documents filed Thursday with the Securities and Exchange Commission.

Included in Dashburg’s bonus money: $750,000 for helping to land wage concessions from employees, a figure one labor leader called “outrageous.”

A stock option plan outlined in the documents could mean tens of millions more, depending on how Northwest fares on Wall Street.

Base pay for the top five executives ranged from $463,906 for Dashburg to $278,907 for Barry Kotar, senior vice president-sales, who also received a $271,328 bonus.

It cam during a roller-coaster year that saw the company lose $115.3 million despite posting a near-record profit during the third quarter and an additional $10 million profit during the final three months.

The documents provide the first glimpse at what Northwest pays it top executives since the company went private in 1989 in a $3.6 billion leveraged buyout led by financiers Alfred Checchi and Gary Wilson. The documents were filed in connection with a planned public offering of stock that the airline hopes will raise as much as $460 million.

Wilson and Checchi, Northwest co-chairmen, are not on the company payroll. But the two own stock that would be worth more than $456 million at the $20 per share price Northwest is seeking in its public offering.

Compared with salary and bonuses at other airlines, Northwest appears to be a generous employer for the executives at the top.

The top five executives at Northwest pulled down slightly more than $4 million in pay and bonuses during 1993.

Along with Dashburg and Kotar, William Slattery, executive vice president-international, received $621,834; Mickey Foret, chief financial officer, $599,954; and Michael E. Levine, executive vice president-marketing, $577,181.

Figures for other airlines are a year old and from a time when the industry suffered record losses, but they show none of the top four carriers paid its top five executives more than $2.2 million combined, according to company proxy reports.

United, which surpassed American as the world’s largest carrier based on traffic last year, paid its top five managers a combined $2 million, while the top five salaries at American totaled slightly more than $2.2 million.

US Air, the carrier nearest in size to Northwest, paid its top five managers the equivalent of what Dashburg alone made in 1993: $1.6 million.

The pay for Northwest executives did not sit well Thursday with the leader of the company’s largest union, which joined other workers in agreeing to $886 million in pay cuts last summer to help avert a bankruptcy filing. Workers, including management, received a 33 percent stake in the company.

“Our members saved the airline from its own mismanagement, and they end up getting bonuses out of it,” said Tom Pedersen, head of the 24,000-member International Association of Machinists at Northwest. “I think it’s outrageous.”

Another labor leader predicted fallout from Northwest workers, who sweated under the threat of bankruptcy last summer.

“I frankly think they’ll be shocked and appalled,” said David Barrow, vice president of the Teamsters at Northwest, which represents 8,600 flight attendants. “But I think that’s a flaw with the American capitalistic system, not just Northwest Airlines.

Barrow said the compensation appears in line with what top management at other companies earn, adding: “Dashburg is worth it.”

A spokesman for the pilots union at Northwest declined comment Thursday.

Stock options could net Northwest executives millions more, depending on how Northwest fares on Wall Street. The carrier is seeking $800 million altogether, from a stock offering and a note offering.

If all goes well, Dashburg and the four other executives will have options work more than $20 million.

“You run an airline, you’re putting your health at risk,” said Michael Boyd, president of Aviation System Research. “But it’s pretty obvious who had to take the sacrifices and who didn’t. If the IAM is just a little bit perturbed, there’s good reason.”

This was in St.Paul Pioneer Press February 26, 1993

There’s often an eerie, Jekyll and Hyde quality about Northwest Airlines executives. Throughout the carrier’s long, bloodcurdling journey to the brink of bankruptcy and (part-way) back, top managers have frequently appeared as gracious as skillful, at least in the arts of financial deal-making and corporate image control.

But abruptly, from time to time, these estimable professionals seem to disappear, replaced by ham handed oafs whose sensitivity to how things look is grotesquely stunted.

The Mr. Hyde personality is at his repulsive work once again in the news that Northwest president John Dashburg was awarded a special, $750,000 bonus last year, largely for his success in extracting some $900 million in wage and benefit concessions from the airline’s employees. This may not be indefensible as a corporate compensation strategy, but to openly package Dashburg’s reward this way is a public relations and morale disaster.

This is tantamount, is it not, to an old-fashioned, plantation overseer’s compensation plan – a bonus for getting more work out of the field hands while cutting their rations? It is hard to comprehend why the airline would fail to design Dashburg’s compensation more sensitively and subtly. Their internal pride in their shrewd restructuring efforts has apparently blinded the board of directors to ordinary folks’ simpler standards of fairness and shared sacrifice.

That said, there is no denying that Dashburg and his chief lieutenants did what the airline needed done last year, and that it was no minor feat. On balance, Dashburg’s total compensation (and that of other Northwest brass) is merely competitive with other airlines and other large businesses.

But it would sure be easier to congratulate Dashburg and company for their big payoffs if the windfalls had come after the airline had returned to solid profitability, after its survival seemed assured and after employees’ concessions had been proved a sound investment.

This is the opinion of the Pioneer Press editorial board.

So VOTE NO To pay cuts and YES to STRIKE!