Northwest Airlines pilots overwhelmingly approved a new contract Friday that gives them a 15-percent annual pay cut for the next two years and allows the company's regional affiliates to carry more passengers.
The agreement would let Northwest Airlines Corp. — which is trying to cut costs to deal with higher fuel prices and tough competition — boost revenue by adding new regional jets and increase the number of seats in existing small jets.
Of the 4,129 pilots who voted, 89 percent favored the agreement and 11 percent were opposed, the pilots' union announced.
The concessions are part of an agreement between Eagan-based Northwest and the Air Line Pilots Association to generate $265 million in savings as the struggling company attempts to slash its labor costs by $950 million a year.
Union leaders unanimously approved the contract earlier, and recommended that rank-and-file pilots follow suit in order to help Northwest renegotiate a $975 million credit agreement that expires in October 2005.
Failure to refinance the deal could have consequences for other credit agreements and for the company's continued financial viability. The new contract won't take effect until after the credit agreement is renegotiated.
Besides the 15-percent pay cut, pilots would have to pay a 20-percent premium share for medical and dental insurance, a first for Northwest pilots. They would also be subjected to a 1,200-hour-a-year cap on sick leave.
As part of the agreement, Northwest executives would accept the same 15-percent salary cuts as pilots. New Northwest CEO Doug Steenland's base salary of $675,000 would be reduced to $573,750 a year, and his annual performance pay would take a hit as well.
The pilots' pension fund would not be restructured, though the airline would achieve savings because pilots' reduced salaries would result in lower pension contributions.
Northwest has been trying to wring $950 million a year in labor cost savings from all of its employees, and the pilots were the first group to negotiate. Negotiations with ground workers are under way, and begin soon with mechanics and flight attendants.
The airline has lost $2.1 billion on operations since the beginning of 2001.