Northwest Airlines Latest to Propose DB to DC Move

March 30, 2005 ( - A beleaguered Northwest Airlines, continuing to struggle for financial stability, has announced a new round of cost-saving measures including freezing its defined benefit plan and moving employees to a defined contribution program.

The Eagan, Minnesota-based airline announced the move as part of a new decision to up its cost-savings goal from the previously announced $950 million to $1.1 billion. The carrier said it already meeting with union officials to discuss the new savings target and to get union buy-in for the proposed DB to DC pension move.

Northwest spokesman Kurt Ebenhoch told the Detroit News that the airline’s current defined benefits plan is underfunded by $3.8 billion.

The DB to DC move, already proposed by Northwest’s pilots (See NWA Pilots to Propose DB-DC Switch ) mirrors similar moves by a number of companies including IBM (See Q/A: “Blue” Moves ) and Motorola (See Motorola Alters Pension Benefits for New Employees ).

Northwest said in its Web statement that it decided to increase the corporate savings targets after reviewing its high fuel costs, the restructuring of air fares to remain competitive with other carriers, and the labor cost reductions undertaken by those competitors. The new $1.1 billion target includes $300 million in annual labor savings from Northwest pilots and salaried and management employees that went into effect in December 2004.

The company has lost $2.5 billion since 2001.

Northwest first asked for $950 million in concessions in the spring of 2003, but so far the carrier’s 5,500 pilots are the only union to agree to cutbacks. On December 1, 2004, its pilots conceded $265 million in annual savings and the non-union work force at the airline kicked in another $35 million. Other Northwest unions, representing about 30,000 workers, have gone nearly two years without agreeing to cutbacks.