Northwest Airlines Corp. said on Tuesday that it chose not to make $42 million in debt payments in recent days, suggesting the carrier is conserving its cash ahead of a potential bankruptcy filing. Bankruptcy worries sliced more than half the value off Northwest shares.
Northwest's board planned to meet Wednesday morning to decide whether to file for bankruptcy protection, said Will Holman, a spokesman for the Air Line Pilots Association union, which has a member on the board. Earlier, The New York Times reported in its online edition the carrier may file for bankruptcy protection as soon as Wednesday, citing anonymous sources.
The carrier, whose mechanics have been on strike since Aug. 20, said it also must make a $65 million pension contribution on Thursday or risk having a claim made against its assets, according to a filing with the Securities and Exchange Commission Tuesday afternoon.
Typically, such defaults could trigger other debt covenants that would force a bankruptcy.
"If the Company fails to make this payment, a lien would automatically arise against its assets unless the Company had previously sought bankruptcy protection," Northwest said of the pension payment in the filing.
Northwest spokesman Kurt Ebenhoch would say only that the airline "has made no decision" on a bankruptcy filing.
Shares of Northwest Airlines Corp. tumbled 53 percent to close at $1.57 on the Nasdaq Stock Market after the Times' report.
Northwest, which is flying through a strike by mechanics, has said previously that bankruptcy is a possibility. The company has raised its $1.1 billion target for annual labor cost savings to a new, undisclosed figure, as rising fuel prices have battered the airline.
The delayed payments included $19 million owed to Northwest regional partner Mesaba Aviation Inc., which gets its aircraft and schedule from Northwest and operates under the Northwest Airlink brand. A filing by Mesaba parent MAIR Holdings, Inc. said Northwest has until Sept. 20 to make the payment or "Mesaba may exercise available remedies against Northwest."
Northwest said it missed other payments totaling $23 million related to aircraft financing that were due Saturday through Monday. It said the terms of those agreements give it grace periods of five to 10 business days before the payments are in default.
Northwest said it has not yet decided whether to make the payments before the deadlines. Northwest is analyzing its debt, lease and other obligations to decide which ones to try to restructure, it said. The payments that were missed are ones the company would try to restructure.
The potential bankruptcy news comes as Northwest is weathering a mechanics' strike that began Aug. 20. Northwest said it began hiring permanent replacements on Tuesday.
With the walkout in its fourth week, about 200 mechanics rallied at the union's strike headquarters in a hotel parking lot near Minneapolis-St. Paul International Airport, where their leaders told them Northwest's fill-in maintenance operation can't last.
"If we stay strong, if you don't cross that picket line, the company will have no choice but to contact us," said Jim Young, chief negotiator for the Aircraft Maintenance Fraternal Association.
Ted Ludwig, president of the union's Twin Cities local, also urged the strikers to stick together.
"If you want to work at a nonunion place, go to Wal-Mart. Don't go back in here," he said, jerking a thumb over his shoulder at a Northwest maintenance hangar in the distance.
The two sides haven't met since early Sunday, when mechanics walked away from an offer that sought even more concessions than they rejected before striking.
Ebenhoch would not talk in detail about the permanent hires of replacements, saying only that the process was "underway and proceeding smoothly."
In a letter to the union late Monday, Northwest urged the union leaders to allow a vote on the airline's latest offer. But mechanics at Tuesday's rally didn't appear unhappy that their leadership wasn't sending them an offer. When Young asked the crowd whether anyone wanted to vote on the last proposal, they roared, "No!"
Northwest mechanics, cleaners and custodians have been on strike since Aug. 20, although Northwest has kept flying without them.
Delta and Northwest may be heading to bankruptcy court today, their finances ravaged by years of losses, rising fuel costs, and the challenge of low-cost airlines.
Northwest Airlines and its striking mechanics to meet this week.