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Executives at Northwest Airlines Corp. turned up the pressure on the carrier’s labor groups Tuesday, warning that the airline will be forced into bankruptcy if it does not lower costs in the months to come. The Eagan, Minn.-based airline, which reported a second-quarter loss of $217 million Tuesday, said it needs $1.1 billion in annual labor savings and a change in pension law to avoid a bankruptcy filing. The company is currently in heated discussions with both its flight attendants and mechanics, with the latter group threatening to strike when a cooling-off period ends in August. Northwest, which has lost more than $3 billion since 2001, aims to negotiate the replacement of its pension plans with cheaper defined-contribution plans. A bill pending in Congress would allow Northwest and other airlines to stretch pension payments out up to 25 years. The legislation would ease near-term cash outlays and help Northwest avoid a filing, the airline has said. Northwest incurs some of the highest costs in the industry, and that position is not sustainable, company CEO Doug Steenland told investors Tuesday. “Many of our major competitors have significantly lowered their labor costs, both in and outside of bankruptcy,” Steenland said. “It is imperative that we reach labor agreements with all of our unions as quickly as possible.” The company has been burning about $4 million a day so far in 2005, in part because it paid more than 50 percent more for fuel during the second quarter than it did during the same three months of 2004. Some industry observers, however, say Northwest will be able to avoid a filing. Some version of pension reform is expected to clear Congress, they argue, and the unions appear unlikely to risk going through a costly bankruptcy. Absent labor cuts and labor reform, an early 2006 bankruptcy appears “unavoidable,” Jamie Baker, an analyst with J.P. Morgan Securities Inc., wrote in a recent research report. But the positive news, Baker said, is that “labor likely knows this, [and] Washington seemingly [is] coming around.” Northwest has said it has replacement workers lined up should the mechanics strike, adding that it does not expect a work action to disrupt its operations. Unlike rival Delta Air Lines Inc., which also is struggling, Northwest has a vast Asian route network that has held up better against competitive pricing pressures than domestic or trans-Atlantic routes. Those routes should provide a steady stream of revenue that could help the airline to avoid a bankruptcy, an industry analyst said. Copyright �2005 TDD, LLC. All rights reserved.

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