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A SENSIBLE BARGAIN AT NORTHWEST AIR
It could be a model for other labor-management deals in the airline industry: Northwest Airlines Inc. recently concluded an agreement with its pilots and machinists unions, under which the unions will receive up to 37.5% of the company's equity and three seats on the board in exchange for giving up as much as 15% of current wages. Northwest, to be sure, was up against a wall: Heavily indebted and flirting with bankruptcy, management had little choice but to ante up to the unions.
The Big Three airlines--United, Delta, and American--don't face such financial straits. They do, however, have to cut costs. And if they hope to get the unions on board by agreeing to wage givebacks or productivity gains, they might consider offering some equity in return, and possibly board representation as well. Equity gives workers a bigger stake in the future performance of a company, while board representation gives them a bigger say in its decision-making.
Such concessions don't sit well with the Big Three, which are loath to dilute shareholder equity and feel that they shouldn't have to cede so much to the unions--especially when it's union work rules that have hobbled productivity and boosted costs. There's no doubt that management should continue to press for relaxation of those work rules. And the majors should also take a hard look at their overexpansion of the hub-and-spoke system and shut down underused hubs. But if the Big Three don't contain costs now and try to give workers an incentive to do so, in a few years they may find themselves fighting the same battles that their much weaker competitors are fighting today.