In re Northwest Airlines Corp.
| Decision Date | 29 June 2006 |
| Docket Number | No. 05-17930(ALG).,05-17930(ALG). |
| Citation | 346 B.R. 307 |
| Parties | In re NORTHWEST AIRLINES CORPORATION, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Arnold & Porter, LLP, By Brian P. Leitch, Esq., Timothy R. Macdonald, Esq., Tim Atkeson, Esq., Denver, CO, Cadwalader, Wickersham & Taft LLP, By Bruce R. Zirinsky, Esq., Gregory M. Petrick, Esq., New York, Counsel for the Debtors.
Phillips, Richard & Rind, P.A., By Mark Richard, Esq., Miami, FL, Seham, Seham, Meltz & Petersen, LLP, By Lee Seham, Esq., George Diamantopoulos, Esq., White Plains, NY, Former Counsel for the Professional Flight Attendants Association.
Cohen, Weiss & Simon, LLP, By Richard M. Seltzer, Esq., Thomas N. Ciantra, Esq., Peter Herman, Esq., Robin H. Gise, Esq., Oriana A. Vigliotti, Esq., New York City, Counsel for the Air Line Pilots Association, International.
Lowenstein Sandler, P.C., By Sharon L. Levine, Esq., S. Jason Teele, Esq., Roseland, NJ, Counsel for the International Association of Machinists and Aerospace Workers, AFL-CIO.
Otterbourg, Steindler, Houston & Rosen, P.C., By Scott Hazan, Esq., Todd M. Goren, Esq., Lorenzo Marinuzzi, Esq., New York, Counsel for the Official Committee of Unsecured Creditors.
EMORANDUM OF OPINION
Before the Court is a motion (the "Motion") by Northwest Airlines Corporation and its affiliates (the "Debtors") to reject a collective bargaining agreement and change the terms and conditions of employment of its flight attendants. The authorized representative of the flight attendants, the Professional Flight Attendants Association ("PFAA"), objects to the Motion and to the relief sought by the Debtors.
The Debtors filed the Motion on October 12, 2005, pursuant to § 1113 of the Bankruptcy Code, seeking to reject their collective bargaining agreements with PFAA, the Air Line Pilots Association, International ("ALPA") and the International Association of Machinists and Aerospace Workers ("IAM"). After months of negotiation and ten days of trial, the Debtors settled all their issues with ALPA and substantially all their issues with IAM, and their respective memberships ratified the settlements.1 The Debtors settled with PFAA as well, but its membership failed to ratify, and the Debtors have returned to court for authority to reject the collective bargaining agreement and change the terms and conditions of employment of the flight attendants.
The Motion involves issues of great significance to the nation's fifth largest airline and to its 9,000 flight attendants, who have professionally served the traveling public for many years and whose pay and working conditions would be materially different under the Debtors' proposals. The Motion obviously also involves the interests of the Debtors' 25,000 other employees, their tens of thousands of creditors, and their passengers. All concerned would be well-served if the flight attendants and the Debtors could resolve their disputes through continued negotiation, and as further discussed below, the Court is therefore requiring the parties to make one last effort to reach a ratifiable agreement. Nevertheless, it is clear that the process of negotiation cannot drag on indefinitely and that the negotiations would be assisted by a determination at this time of the central legal issues raised by this § 1113 motion.
Section 1113 of the Bankruptcy Code permits a debtor to reject a collective bargaining agreement if (i) rejection is "necessary" to its ability to reorganize; (ii) the debtor has made a proposal to the authorized representative of the employees that has been rejected by the authorized representative without "good cause"; and (iii) the balance of the equities clearly favors rejection. Section 1113 attempts to reconcile the public policy that favors collective bargaining with the reality of bankruptcy, recognizing that Chapter 11 is not merely business as usual but an extremely serious process that can lead to liquidation and the loss of the jobs of all the debtor's employees as well as of the creditors' opportunity for any meaningful recovery. For the reasons stated in the remainder of this opinion, based on the applicable authority under § 1113 and on the entire record of this case, there is no question that rejection of the flight attendants' collective bargaining agreement is "necessary," that the Debtors' proposal was rejected by the union membership without "good cause," and that the balance of the equities clearly favors rejection.
The remaining issue in this case is the relief that should be ordered. The Debtors urge the Court to authorize them to put into effect their proposal of February 22, 2006, which was the last proposal made to PFAA before agreement was reached on March 1, 2006 (the agreement that was not ratified). PFAA argues against rejection and for more negotiation, but asserts that if rejection is authorized, the Court should not depart from the March 1 terms to which the union leadership agreed but its membership rejected. For the reasons set forth below, the Debtors cannot now repudiate the March 1 terms. Moreover, consistent with § 1113, the parties should have every opportunity to come to an agreement themselves. The Debtors and IAM were able to agree on a ratifiable agreement after the first deal was rejected by one of the bargaining units, and there is no reason, in principle, why a new agreement with PFAA cannot be reached. But there can be no substantial delay. The Court will give the parties fourteen days to reach an agreement and will stay the effectiveness of a § 1113 order for that period. If a new agreement cannot be reached that can be promptly effectuated, the Debtors will be authorized to institute new terms and conditions of employment that do not materially differ from those described in the March 1 Agreement.
The following constitutes the Court's findings of fact and conclusions of law.
The Debtors' Motion to reject their collective bargaining agreement with PFAA, as well as the agreements with ALPA and IAM, filed on October 12, 2005, was based on the Debtors' proposals of September 26 and 27, 2005 to modify the agreements to provide for substantial labor concessions (the "September Proposals").2 Each proposal included, among other things, changes to wages and work rules, changes to medical benefits for active employees and current retirees, a freezing of the unions' defined benefit plans and establishment of defined contribution plans, and profit sharing. Additionally, (i) the proposal to PFAA included obtaining the flexibility to employ foreign national flight attendants on international flights; (ii) the proposal to ALPA included modifications to the scope clauses in its collective bargaining agreement; and (iii) the proposal to IAM included outsourcing baggage handling and functions of customer service agents at certain of the Debtors' locations. Under the September Proposals, the Debtors sought to achieve approximately $1.361 billion in labor cost savings in 2006, plus pension plan restructuring. To realize the $1.361 billion, the Debtors sought, pursuant to the Motion, a total of approximately $747.3 million in 2006 savings from its unions, which included $195 million from PFAA, $358 million from ALPA, $190.4 million from IAM, and 83.9 million from the Debtors' three smaller unions, ATSA, NAMA and TWU.3 The Debtors stated in their Motion papers and have consistently maintained throughout that they are flexible on the make-up of the concessions from the unions, so long as the savings achieved aggregate the original "ask." (See, e.g., Motion, at 5: "Northwest has made clear that while it is imperative that it reach the cost reduction targets for each union, it is flexible and open to negotiation regarding precisely how the targets are reached.")
In early November 2005, the Debtors made further proposals to PFAA, ALPA and IAM to obtain interim relief from each union's collective bargaining agreement pending further negotiations and the § 1113 hearing. Each proposal provided for interim labor concessions that approximated 60% of the labor savings being sought from these unions in the Motion. The interim savings were estimated at $117 million in annualized cost savings from PFAA, $215 million in annualized cost savings from ALPA and $114 million in annualized cost savings from IAM. The Debtors reached consensual agreements with PFAA and ALPA with respect to the interim relief requested of these unions, but the interim relief requested of IAM was opposed. On November 7, 2005, the Debtors moved under § 1113(e) for interim relief from their collective bargaining agreements with IAM and for approval of the interim agreements with PFAA and ALPA. On November 16, 2005, the Court entered an order which approved the Debtors' interim agreements with ALPA and PFAA and implemented the interim relief requested of IAM pursuant to § 1113(e) based on the Debtors' showing that they were losing approximately $4 million per day at prevailing wage rates, and that losses of that magnitude could not continue without endangering the Debtors' continued viability and prospects for reorganization. The order also adjourned the hearing on the § 1113(c) Motion.4
The Court thereafter conducted an eight-day evidentiary hearing on the Motion, beginning on January 17, 2006.5 At the outset of the hearing, the Debtors announced that they had reached an agreement with IAM, pursuant to which IAM would send out for member ratification the last proposal it had received from the Debtors.6 The hearing continued with respect to PFAA and ALPA. Although the Debtors' January 17 proposals were nominally on the table at the commencement of the hearings, the testimony of the witnesses at the hearing was scheduled so that negotiation could continue even while...
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