EAGAN, Minn., Oct. 12 /PRNewswire-FirstCall/ -- As part of its restructuring, Northwest Airlines (OTC: NWACQ - News) is seeking $2.5 billion in overall savings in order to return the company to profitability on a sustained basis. To achieve these savings, Northwest is committed to realizing competitive labor and non-labor costs, restructuring its balance sheet, achieving market rates for its aircraft and optimizing business practices.

With respect to its efforts to realize competitive labor costs, Northwest today filed a Section 1113(c) motion with the U.S. Bankruptcy Court for the Southern District of New York that outlines the company's financial condition, competitive environment, and proposed labor cost reductions. The filing requests that the court reject the existing labor agreements if the company is unsuccessful in reaching new terms with its labor groups through collective bargaining.

"Now that Northwest has commenced its bankruptcy process, we will continue our transformation into a modern, competitive carrier. We have identified several key goals necessary to complete this transformation: achieve competitive labor and non-labor costs, strengthen our balance sheet, achieve market rates for our aircraft, optimize our business model, and right-size the airline. With jet fuel at record high levels and most of our competitors operating with a much lower cost structure than Northwest, the airline must move quickly to achieve these results," said Doug Steenland, president and chief executive officer.

"Our primary labor cost reduction goal remains reaching consensual agreements with all of our unions. Our Section 1113(c) filing today serves as a backstop in the event these negotiations do not provide the labor cost structure we require in the time frame necessary. We must quickly reduce our labor costs by $1.4 billion annually. Our court motion gives union leaders and Northwest management time to reach the necessary agreements, before the court would be compelled to intervene and impose new contracts," Steenland continued.

The court motion outlined Northwest's new targets for its labor groups. These targets have been communicated to union leaders. The total labor cost savings requirement includes the $285 million in annual savings the airline realized from its pilots and salaried and management employees starting in December 2004, as well as the approximate $200 million in annual savings achieved from restructuring Northwest's maintenance organization after the strike by Aircraft Mechanics Fraternal Association (AMFA)-represented employees in August.

Northwest said that its salaried and management employees will take a second round of pay and benefits reductions in the near future.

OTHER RESTRUCTURING GOALS

Steenland continued, "In addition to achieving the necessary labor and non-labor cost savings, Northwest must restructure its balance sheet during the Chapter 11 process. The company's debt holders will need to shoulder their fair share of the sacrifices necessary to restructure Northwest. As we continue through the restructuring process, we will be taking actions to strengthen the airline's balance sheet.

"Northwest must also be right-sized to compete in the new marketplace. Northwest will become a smaller airline to compete successfully in a world where fuel may continue to be priced at $60 per barrel or more and refining costs are at record levels. Routes that might have been commercially viable with oil at $40 per barrel are not profitable at $60 per barrel or higher. Moreover, a number of airplanes in our fleet have above-market lease rates."

Steenland added, "We need to be in a position to either return these airplanes to their owners or obtain market-based lease rates. We have started the process by returning seven airplanes and have identified more than 100 additional Northwest-operated aircraft as well as aircraft owned by Northwest but operated by our regional partners as candidates for return."

SCHEDULE UPDATED

As a step in right-sizing the airline, Northwest also reduced its late fall schedule. Along with previously announced reductions, Northwest anticipates that its fourth quarter system mainline capacity will be down seven to eight percent compared with the fourth quarter of 2004, with domestic mainline capacity decreasing nine to ten percent, and international mainline capacity down four to five percent.

Tim Griffin, executive vice president of marketing and distribution, said, "Record-high fuel costs, industry overcapacity, and the growth of low-cost carriers and the fares they are able to offer are negatively impacting the financial performance of many of the flights we currently operate."

"The schedule reductions will have minimal impact on the airline's three domestic hubs. Many of the markets we serve will see no change in the number of flights offered."

"The late fall schedule provides the markets we serve with broad time-of- day coverage, while judiciously and responsibly reducing capacity. This element of Northwest's restructuring increases aircraft utilization, making Northwest a more efficient airline," Griffin added.

As the U.S. airline industry moves into the traditionally slower winter travel season, Northwest is planning additional schedule reductions beginning in January 2006. While Northwest's January schedule is still under review, the airline expects its first quarter 2006 system mainline capacity to be down 11 percent to 13 percent from the same period in 2005. Over time, the Northwest mainline flight schedule could be reduced by as much as 15 percent or more.

"The actions we are announcing today are indicative of Northwest's desire to move expeditiously through the bankruptcy process in order to restructure its costs so that the airline can remain a strong global competitor in the years ahead," Steenland concluded.

Northwest Airlines is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 900 cities in excess of 160 countries on six continents.

Source: Northwest Airlines