Northwest After Year With Checchi : Airlines: The highly leveraged carrier has suffered operating losses but service is better and labor strife has eased.
Alfred A. Checchi is trying to make Northwest Airlines bigger and friendlier, but he has been battling the head winds of a sluggish industry and some isolated turbulence in his first year as chairman.
Approaching the Aug. 3 anniversary of the day Checchi’s group finalized a $3.65-billion buyout of the nation’s fourth-largest carrier, Northwest is thirsting for growth despite an industrywide slump.
With eyes on Eastern Airline’s Atlanta hub and possibly other Eastern jewels, Checchi has discussed with Eastern’s creditors buying the assets out of bankruptcy court proceedings.
“They barely had the Northwest deal done before they started looking at the landscape (for acquisitions),” said Duane Woerth, head of the union representing Northwest’s 5,600 pilots. “He’s changed the focus from top to bottom.”
In the past 18 months, Northwest has gone from being a conservatively managed takeover target with a fat balance sheet to a highly leveraged aggressor headed by industry novices. Racked with labor strife and performance woes under former Chairman Steven Rothmeier, Northwest under Checchi is at peace with its unions and winning back customers who had dubbed it “Northworst.”
Along the way, however, there have been distractions.
Three Northwest pilots were arrested March 8 on charges of flying a passenger jet while under the influence of alcohol. The FBI alleges that a 9-year-old girl was molested July 5 on a flight from Anchorage, Alaska, to Pittsburgh. And Northwest has said it is one of many airlines being investigated by the Justice Department for industry pricing activity.
Checchi and other top executives at the airline have been declining interviews for weeks. But he has repeatedly said he intends to double the carrier’s size in five years and make it America’s most preferred airline.
“They’ve improved the morale and the spirit of the people, but I don’t think they’ve made any money,” said Mort Beyer, an aviation consultant in Arlington, Va. “My impression is that their costs will be increasing faster than their revenues. I continue to watch it with concern.”
Since the takeover, Checchi has filled eight of the top 10 posts at Northwest and has lost a lead fleet manager to United Airlines. Former Chief Financial Officer William Trubeck also has resigned but will be a consultant. Five new executives had no airline management experience: Checchi, Director Gary L. Wilson, Chief Executive Fred Rentschler, President Frederic Malek and Chief Financial Officer John Dasburg.
Rentschler had been CEO at Beatrice Cos. and Dasburg, Malek, Wilson and Checchi had worked together at Marriott Corp., where Wilson was Checchi’s boss.
“They are primarily deal makers,” Cliff Ehrlich, senior vice president of human resources at Marriott, said of Checchi and Wilson. “I think they wake up in the morning thinking about deals and go to bed thinking about deals.”
Checchi has said the airline is healthy despite a $7.2-million operating loss in the final quarter of last year and a $90-million operating loss in the first quarter of this year. Despite the losses, the $3.35-billion takeover debt has been slashed to about $2 billion, putting the airline three years ahead of its seven-year repayments, spokesman Doug Miller said.
But most of the payments have been made from cash reserves, selling and leasing back some planes and restructuring real estate, Beyer said.
“That can’t go on forever,” he said. “They need better cash flows, and the outlook for the year is down. The industry has had $2.5 billion in operating losses in the past nine months, but nobody pays attention to that.”
Mike Hamilton, an analyst for the Leuthhold Group of Minneapolis, said Northwest could afford an acquisition, but only at the right price.
“I don’t think he’ll get them (Eastern’s assets) at bargain prices,” Hamilton said, “but there is nothing lost in trying.”
Eastern assets would fit Northwest by adding passenger loads, expanding maintenance space and feeding Pacific Rim routes. But labor trouble could break out if Checchi hires from the non-union ranks at Eastern, said Guy Cook, president of International Assn. of Machinists District Lodge 143.
“We will war with them if they come up with stupid ideas,” Cook said. “But at this point, I have no reason to war with them.”
Checchi hasn’t been tested by contract talks, but Woerth and Cook say relations are vastly improved. For 40 years, workers considered themselves pawns of Draconian managers, Cook said. Now they sense some cooperation.
In the old days, for example, a collision of ground vehicles triggered automatic three-day suspensions, Cook said. A new disciplinary program “emphasizes the good performances,” he said.
“What I notice is the people throughout the company are more proud of the airline,” Woerth said.
Meanwhile, travelers have observed a more punctual and reliable airline. Northwest recently completed six months of on-time performance at par or ahead of comparable carriers, according to U.S. Transportation Department reports. In addition, fewer bags have been lost, according to the reports.
The improvements dovetail with a five-year plan to invest $422 million to improve food service, seat space, cabin decor and speed of maintenance.
“When it was Northwest Orient, it was a class airline,” said Jim Maggio, whose New York firm is a travel agent for General Motors Acceptance Corp. “They’re getting back to that.”
Hamilton said the pilots’ arrests and the allegations of an assault on the 9-year-old passenger could have left bigger stains on the company. But Checchi’s management team moved swiftly, including firing the pilots.
“The one thing they have is a lot of common sense,” Hamilton said. “They’ll make a mistake, but they don’t make the same mistake twice.”
