This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Northwest Flight Attendants Sue Over Wage Concessions June 4, 2003 By MARY WILLIAMS WALSH Flight attendants at Northwest Airlines sued the company yesterday, accusing it of breaking a promise to compensate them this summer for millions of dollars in wage and benefits concessions negotiated a decade ago. The dispute began late last month, when Northwest notified its flight attendants that it might not be able to make good on a promise to buy back a block of preferred stock it issued to them in 1993. The stock was intended to compensate the 11,000 flight attendants for wages and benefits they gave up from 1993 to 1996. The stock grant included a put option that gave the flight attendants the right to sell back their shares at a predetermined price starting this past Monday. A lawyer for the flight attendants, Howard J. Graff, said the preferred stock was part of a total package worth about $900 million issued to the airline's pilots and mechanics as well as the flight attendants. Mr. Graff said the pilots had already traded in their preferred shares for Northwest common stock, as the 1993 agreement allowed them to do. But he said the flight attendants still had the right to sell $100 million worth of shares back to Northwest and that the mechanics had the right to sell back $135 million in stock. Mr. Graff, a partner at the law firm of Dickstein Shapiro Morin & Oshinsky, said the employees were afraid Northwest was going to wipe out the value of their shares, and that the mechanics were considering joining the flight attendants' suit. The International Brotherhood of Teamsters, which has represented Northwest's flight attendants since 1992, is also named as a plaintiff. The amount of money in dispute - about $235 million - is relatively small compared to the debt obligations that major airlines and large industrial companies routinely undertake. But in light of the severe financial troubles of the industry, the disputed money raises fresh questions about Northwest's ability to meet its coming cash obligations. Bill Mellon, a spokesman for Northwest, said the airline was still reviewing the complaint and the applicable laws and had no comment. In a May 22 letter to employees and retirees holding the preferred stock, Northwest's senior vice president for human resources, Michael J. Becker, said that the airline's board would decide "on or about Aug. 1" whether to buy back the stock. He also said that if the company was unable to buy it back, it would start paying a 12 percent dividend on the shares and raise the number of labor directors on its board to six from three. Northwest's move comes at a time of tension between the airline and its unions. This spring, Northwest asked its unions for $1 billion in wage and benefit cuts by July 1, saying it needed the concessions to compete with lower labor costs at American Airlines, which has warned that it might seek Chapter 11 bankruptcy protection, and at US Airways and United Airlines, both of which filed for bankruptcy. Northwest's chief executive, Richard H. Anderson, said at the annual meeting in April that it, too, might be pushed into Chapter 11. But industry analysts took issue with that, saying Northwest had enough cash to get through the year. And Northwest's unions refused to go along with the July 1 deadline. However, Northwest's announcement that it might not honor the put option on the preferred shares was viewed as an indication that it might be guarding its cash supply. Along with United, Northwest is a leading carrier to Asia, where it has seen a steep decline in traffic due to the outbreak of severe acute respiratory syndrome, or SARS. In addition, Northwest's decision and the lawsuit heighten questions about the airline's pending request to use the stock of a private subsidiary, instead of cash, to make mandatory contributions to its employee pension funds this year. Companies are typically barred from contributing related-party stock to their pension funds when the transactions would take the pension funds above a 10 percent "self dealing" limit. But on rare occasions, the Labor Department has waived this limit, and Northwest has applied for such a waiver, citing a need to conserve cash. In its application, Northwest has proposed hedging that stock contribution with another put option, which would commit the airline to buy back the shares at a price no lower than they were deemed to be worth at the time Northwest made the pension contribution. The subsidiary's stock is not publicly traded and Northwest has named an independent consultant to advise workers on the matter. The flight attendants' lawsuit questions these plans, calling it "duplicitous" to secure pension obligations with a put option when Northwest is already warning that it may not honor an existing one. The complaint accuses Northwest of trying to convert "the flight attendants' sweat equity into unpaid slave labor." A spokeswoman for the Labor Department said the agency was still considering Northwest's proposal. The waiver application is being closely watched as many corporate pension funds are coping with large deficits and seeking various forms of relief from the government. The put option granted to the flight attendants offered them the ability to sell back their shares to Northwest at $46.96 a share from Monday of this week until Aug. 1. The shares also conferred the right to elect three directors to Northwest's board. The terms also called for Northwest to decide by Monday whether to buy back the preferred shares with cash, common stock or a combination of cash and common stock. Yesterday, Northwest issued a news release saying that it had "elected to use cash." The airline added, however, that this decision did not necessarily mean it would buy back the stock this year. "Consummation of the repurchase is subject to, among other things, compliance with corporate law requirements applicable to the company," the statement said. The lawsuit asks the court to order Northwest "to comply with its contractual obligations to the flight attendants" and demands more than $200 million in damages for what it calls Northwest's breach of contract, its "unjust enrichment" and its alleged failure to deal with the flight attendants in good faith. http://www.nytimes.com/2003/06/04/business/04AIR.html?ex=1055735842&ei=1&en=7884b1f0a4263ae9 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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