Impasse puts Mesaba's future at risk, judge says

Mesaba's unions appealed a bankruptcy judge's ruling that the airline can nullify contracts and impose pay reductions.

Liz Fedor, Star Tribune
August 31, 2006

U.S. District Judge Michael Davis told Mesaba Airlines and union attorneys Thursday that the two sides are playing "Russian roulette" with the company's future because they've failed to find a way to negotiate new labor contracts.

"Both sides ought to talk, but can't talk for some reason," Davis said in a hearing in his Minneapolis courtroom. Mesaba attorney Michael Meyer urged him to uphold a July ruling by a bankruptcy judge that allows Mesaba to impose lower wages and new work rules on its pilots, flight attendants and mechanics.

Union lawyers argued Thursday that U.S. Bankruptcy Judge Gregory Kishel erred in his application of legal standards that Mesaba must meet before it can be given court authority to nullify existing labor contracts.

They said that Mesaba withheld financial information that was needed to evaluate the scope of the company's labor cuts and that it did not bargain in good faith.

Meyer countered that the airline fulfilled all legal requirements, and said Kishel was correct in approving Mesaba's motion. Davis did not say when he will issue his decision on the unions' appeal of Kishel's ruling.

Mesaba, which filed for bankruptcy in October, told its labor unions in December that it needed six-year concessionary contracts that slash labor costs by 19.4 percent.

Outside the courtroom, Mesaba spokeswoman Elizabeth Costello said those cost savings are crucial because Northwest Airlines has cut Mesaba's fleet in half and wants the carrier to reduce its costs before it will be awarded more regional flying.

"What we are asking for is not only reasonable, but it's necessary for the survival of the company," Costello said.

But almost nine months after Mesaba laid out its demands, Mesaba and the unions still are far apart on cost-cutting deals. No talks are scheduled and none have been held for weeks.

According to the unions, current average pay is $21,000 a year for a Mesaba flight attendant, $32,000 a year for a mechanic and $45,000 a year for a pilot. Wages are much lower on the bottom of the scale for these job categories.

Mesaba wants to achieve the 19.4 percent in labor savings by cutting wages, changing work rules and altering benefits. The unions argue that the cuts would push many employees to or below poverty levels.

"It is just not sustainable for our employees to take that level of deep cuts," said Tom Wychor, chairman of the pilots union.

Northwest is phasing Avro regional jets out of Mesaba's fleet, so the carrier might only operate 49 Saab turboprops. Under Mesaba's wage proposals, that downsizing could result in wage cuts of as much as 60 percent for some pilots who move from an Avro jet to a Saab.

Davis quizzed Meyer about pilot wages. He also asked Meyer, "What's there to negotiate" if Mesaba will not yield on its demands for 19.4 percent in cuts in contracts that span six years. Earlier, union attorney James Linsey said the pilots had offered about 14 percent in cuts over three years. Meyer said "a lot of creativity" could be shown at the bargaining table by the unions to get to the company's cost-cutting goals.

"We do close deals very quickly," said Linsey, an attorney for the Air Line Pilots Association. Unlike other bankrupt airlines, Linsey said Mesaba has refused to accept reasonable concessions from its unions.

Robert Clayman, an attorney for the Association of Flight Attendants, argued that the company's requested labor cuts are excessive, in large part because the company incorporated an 8 percent profit margin into its business plan.

When Meyer was making his presentation, Davis asked why the 8 percent was necessary when Mesaba's operating margin had been 2 to 3 percent in recent years.

Meyer defended the 8 percent margin in court Thursday. A net operating margin of 8 percent was recommended by Mesaba's financial consultants as necessary "for Mesaba to attract the investment needed to exit bankruptcy and to be competitive with other regional airlines," the carrier said in its court filing.

Mesaba now awaits the judge's ruling as it faces a potential cash crunch. The airline has lined up $24 million of debt financing, but that money will not be released until the airline reaches concessionary labor agreements or imposes terms that cut labor costs.

"We are losing millions of dollars every month and we need to secure the [debt] financing loan quickly," Costello said.

Liz Fedor • 612-673-7709 • lfedor@startribune.com