In 1997, Northwest Airlines made a decision that cut against the rest of the industry: It began rebuilding 173 aging DC9 aircraft rather than join rivals' buying spree of new, fuel-efficient Boeing and Airbus jets.
But viewed through the lens of economic downturn, war and now a mysterious respiratory disease called SARS, Northwest's decision to keep 27-year-old aircraft -- spending 20 percent of what it would have spent to buy new planes -- has helped to put the airline in better position than most competitors to survive a severe industry crisis.
In fact, the betting among analysts is that Northwest could withstand a sharp downturn in Asian traffic because of SARS, as long as the decline is relatively brief.
SARS -- or severe acute respiratory syndrome -- does pose a larger threat to Northwest than any other U.S. airline because transpacific routes are its big revenue producers. The airline once known as Northwest Orient has been a major carrier between the United States and Asia since 1947. Today, 26 percent of its total seating capacity is on Asian flights.
Northwest refuses to discuss SARS, other than to say it has canceled no flights because of the potentially deadly illness, which has spread rapidly since being identified in China. The airline declined to make senior officials available to discuss SARS or the airline's health.
Credit Suisse First Boston Corp. yesterday cut its recommendation on Northwest stock to "neutral" from "outperform" on fears that SARS will cut the airline's Asian traffic.
Joel Denny, an airline analyst with U.S. Bancorp Piper Jaffray Inc. in Minneapolis, said it is difficult to determine the relative influences of the war and SARS on Northwest's traffic, but his guess is that SARS "is a much smaller part of the impact."
Denny said the impact could grow, and Northwest would be in real trouble if there was, say, a total quarantine on transpacific traffic, "but that won't happen."
SARS, however, probably will add to the pressure on Northwest and its unions to agree on labor cost reductions to keep pace with rival airlines. Northwest has said it needs $1 billion to $1.5 billion a year in cuts; its one formal proposal to its unions was for a 37 percent wage reduction for pilots over the next 61/2 years.
In the meantime, Denny said, Northwest is a "significant distance" from any bankruptcy threat.
It isn't that Northwest is profitable. In the fourth quarter of last year, it lost $488 million, or $5.68 a share. But that paled when compared with the losses of most of its competitors. On March 21, Northwest announced a 12 percent cut in service and 4,900 layoffs because of a decline in traffic after the start of the war in Iraq.
Darryl Jenkins, a professor at George Washington University who follows the airline industry, noted that SARS has not hit Tokyo, Northwest's main hub in Asia, as badly as such places as Hong Kong. "If SARS goes into Tokyo, Northwest will take a hit," he said.
But Jenkins, like other analysts, said the decision to refurbish the DC9s has become a major factor in Northwest's survival. While other airlines are still making payments on planes they have parked, Northwest has a large fleet of paid-for planes.
"The biggest thing in their favor is the DC9s," Jenkins said.
Denny said the planes are more costly to operate than newer planes, but Northwest is largely free of ownership costs. "They have high variable costs, but low fixed costs," he said.
Denny said Northwest made other smart decisions, including maintaining a large line of credit even during good times. That allowed the airline to immediately draw down about $1 billion of its credit right after the Sept. 11, 2001, terrorist attacks, avoiding more painful measures.
Clark Onstad, a former airline executive and Federal Aviation Administration general counsel, said Northwest also was smart when it did buy some new planes, becoming the first U.S. customer for the Airbus A320 "and getting a hell of a deal from Airbus."
Onstad also said that Northwest's main domestic hubs, Minneapolis-St. Paul and Detroit, "are pretty much protected hubs from a pricing point of view."
"They're not in immediate danger," he said.