Northwest Airlines' ( NWAC) quest for $950 million in annual wage concessions from unions will be a long process fraught with conflict, but a recent offer from pilots has Wall Street seeing potential upside.

This week, Northwest's pilots union, represented by the Air Line Pilots Association, offered $200 million in cost cuts through 2006, which include wage concessions and work rule changes. The details of the ALPA proposal have not been released, but the union's concessions represent a 20% pay cut for pilots, whose salaries range from a low of $35,000 to a high of $240,000.

Union leaders Wednesday hit the road for a week-and-a-half of meetings to present the cost-cutting proposal to 5,000-plus pilots and weigh their feedback. After ALPA's road show ends Mar. 27, the findings will be discussed at an April meeting and the pilots will be polled. If the wage concessions are accepted, they'll be brought to the negotiating table.

In ALPA's eyes, concessions are not a gift, but an investment in the company's future. As a result, analysts think the union will be looking for a share of profits or equity, which could dilute earnings going forward.

"After reviewing Northwest's finances, we feel the $200 million target is the appropriate amount," said Will Holman, communications director for the ALPA. "The reason why we consider it an investment is there needs to be acceptable quid pro quos and protections to ensure the pilots' investment is properly used."

First Step on a Long Road

While ALPA's offer is a promising breakthrough after nine months of negotiation, it is far less than the $442 million in annual wage concessions through 2009 that Northwest management was looking for. Nonetheless, as far as first offers go, analysts are hopeful the proposal will lead to lower costs both sides can live with.

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