Northwest Airlines bonds jumped five to six points on news that the company and pilots union agreed to wage cuts. The company's 9 7/8% '07 bonds increased 6 1/2 points to 50. A trader said he was surprised that the bonds increased so much because the wage cuts were modest. The airline agreed with the Air Line Pilots Association to a 24% pay cut.
The wage concessions will reduce pilot costs by $385 million, according to a union release. The five-and-a-half year contract was agreed to by a 63% to 37% margin. As part of the agreement, the pilots will receive an $888 million unsecured claim in the airline. A spokesman for Northwest said the wage cut is a significant step forward for the airline.
The agreement will only come into effect when the unions for the flight attendants and ramp workers agree to separate wage concessions, he said. Those unions should have agreements ratified by June. He added that the company cannot say what the exact amount of the pilots' unsecured claims will be because the airline is still in Chapter 11. He declined to comment further.