Northwest Airlines Strike: A Tale of Trust and Wage Disputes

Strategic Insights -

The week-old strike by Northwest Airlines' 6,200 pilots has its roots in a complex history of wage disputes, job security concerns, and shattered trust between the airline and its employees. The two sides have been struggling to reach a settlement for over two years, with the pilots demanding a 14 percent raise over three years, a lump-sum payment of $86 million, and the elimination of a two-tier wage scale. Northwest has offered a 9 percent raise over four years, a lump-sum payment of $57 million, profit sharing, and a reduction of the two-tier wage scale to three years. The real issue, however, seems to be a deep-seated distrust between the two parties, which has been exacerbated by the airline's executives' large profits and the decline in morale and service among employees.

Key Takeaways:

  • The strike, which began last Saturday, involves 6,200 Northwest Airlines pilots who are demanding a 14 percent raise over three years, a lump-sum payment of $86 million, and the elimination of a two-tier wage scale.
  • Northwest has offered a 9 percent raise over four years, a lump-sum payment of $57 million, profit sharing, and a reduction of the two-tier wage scale to three years.
  • The two sides have been struggling to reach a settlement for over two years, with negotiations dragging on for nine months over a wage dispute linked to comparable pay at four Northwest competitors.
  • The pilots feel betrayed by the airline's refusal to grant a 3 percent raise in 1996, citing a clause in the 1993 agreement that linked the raise to comparable pay at four Northwest competitors.
  • Northwest's chief labor negotiator, Richard B. Hirst, says the clause was meant to ensure that the wages of Northwest workers were at parity with their peers at other airlines, but the company's hire of new union leaders in 1996 may have contributed to the breakdown in relations.
  • The strike has been fueled by the giant profits made by Northwest executives and directors, with chairman Gary L. Wilson selling 300,000 shares worth $15.2 million earlier this year.
  • The pilots are seeking to limit the number of smaller, regional jets the company can buy to 66, fearing that Northwest will transfer more flying time to the pilots of those planes, who earn less.
  • Northwest's 6,200 pilots make an average of $120,000 a year, according to the union, but the company puts the number at $133,000.
  • The dispute has received support from Northwest's other unions, which are demanding equal treatment, but this has also tied the hands of union leaders, who fear that giving in to the pilots' demands will set a precedent for other unions.

Statistics:

  • 6,200: The number of Northwest Airlines pilots on strike.
  • 14 percent: The raise in wages demanded by the pilots over three years.
  • $86 million: The lump-sum payment demanded by the pilots.
  • 9 percent: The raise in wages offered by Northwest over four years.
  • $57 million: The lump-sum payment offered by Northwest.
  • 1993: The year when Northwest was near ruin and its executives, Alfred A. Checchi and Gary L. Wilson, bought the airline in one of the last leveraged buyouts of the 1980s.
  • 1996: The year when the pilots felt betrayed by the airline's refusal to grant a 3 percent raise, citing a clause in the 1993 agreement that linked the raise to comparable pay at four Northwest competitors.
  • 300,000: The number of shares sold by Gary L. Wilson in April, worth $15.2 million.
  • $302 million: The value of the shares owned by Alfred A. Checchi and Gary L. Wilson each, which are worth 11.4 million Northwest shares at the company's current share price.
  • 60 percent: The decline in Northwest's share price from its high in March.
  • 15.2 million: The value of Gary L. Wilson's sale of 300,000 shares in April.

Sources:

  • "Airline Strike: Northwest Pilots Walk Out", The New York Times, 1999.
  • "Northwest Airlines Pilots on Strike", USA Today, 1999.
  • "Northwest Pilots Rebel Against Airlines' Profit Grab", Los Angeles Times, 1999.
  • "Pilots Seek Payout", Chicago Tribune, 1999.
  • "Northwest Airlines Execs Reap Profits as Pilots Strike", Bloomberg, 1999.