A small group of Northwest Airlines' unsecured creditors will play a major role in reconstructing the bankrupt airline, beginning next week.
Suppliers, bondholders, labor groups, municipal airports and others will line up in New York Friday as they jockey for seats on a creditors committee that will have access to confidential information and the ear of the bankruptcy court judge.
It also will influence the company's restructuring plan and any investigations into the bankrupt company's business practices or governance structure.
Northwest's largest unsecured creditors are a mix of banks, engine leasing companies, caterers, airports, insurance companies and travel agents. The U.S. Trustee in the case decides who among them gets a seat on the committee. While they are a diverse group, they have one thing in common: They are owed money by Northwest Airlines. The Eagan, Minn.-based airline filed for bankruptcy protection Sept. 14.
Unsecured creditors have no collateral for the debts they are owed. Secured creditors do, holding more power in bankruptcy court, and eventually getting paid back more.
"The company belongs to the creditors at this point," said Douglas Baird, a bankruptcy expert at the University of Chicago who has followed the United Airlines bankruptcy. Bankruptcy judges, he said, listen to creditors and work under the adage: "You don't ask, you don't get."
The bankrupt company often seeks the support of the creditors committee before filing any motion, say, for instance, to terminate labor agreements.
The committee members' charge is to get the most they can in payments that may eventually be made to the large group of unsecured creditors, but it is unlikely that they will be paid back in full.
"They have fairly substantial claims on Northwest, and those claims are not going to be fully satisfied," said Rajesh Aggarwal, a professor of finance at the University of Minnesota's Carlson School of Management. The issue becomes how much of a write down they take.
Some of Northwest's largest unsecured creditors include U.S. Bank as a trustee for bondholders, Northwest's two regional carriers Pinnacle and Mesaba airlines, and American Express Travel.
The state of Minnesota, through various agencies, also is a creditor, owed an estimated $50 million for bond issues and other things such as sales taxes and excise fees. The state is in the process of retaining an attorney and intends to seek a seat. But because it is a relatively small creditor it is unlikely to be selected on the official committee.
Labor groups such as the Air Line Pilots Association will seek a seat. The national pilots union has been appointed to such committees in most major airline bankruptcy cases, including those of US Airways, United, Hawaiian Airlines and ATA.
In the case of United, which is expected to exit bankruptcy in February, the flight attendants, machinists and pilots unions all served on the unsecured creditors committee. All took significant wage cuts and layoffs as part of a concessions pact.
In Northwest's case, flight attendants and pilots have indicated that they will seek a seat on the committee.
If the pilots union is appointed to Northwest's committee, a Northwest pilot will be selected as a representative, that union said. The International Association of Machinists, which represents Northwest's baggage handlers and other ground workers, had a seat at the table in both the United Airlines and US Airways bankruptcies.
The airlines' mechanics union, the Aircraft Mechanics Fraternal Association, said it also will seek a seat on the committee, even though the mechanics went on strike Aug. 19. Northwest imposed new contract terms on the mechanics since the strike, and the airline has said that it doesn't intend to undo that contract in bankruptcy court.
While the trustee typically tries to select a cross section of creditors who are the voice of a broad group -- labor unions and bondholders for instance -- diverse interests can slow the process.
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