NWA Directors Talk Bankruptcy Today

The airline's board of directors will meet today to discuss a possible bankruptcy filing, according to unions for Northwest's flight attendants and pilots.


Northwest Airlines is positioning itself for what could be an imminent Chapter 11 bankruptcy filing.

The airline's board of directors will meet today to discuss a possible bankruptcy filing, according to unions for Northwest's flight attendants and pilots.

Julie Hagen Showers, Northwest's vice president for labor relations, told officials with the flight attendants union about the board meeting to consider a bankruptcy filing.

"But she made it clear to us that it is far from a foregone conclusion," said Bob Krabbe, an official with the Professional Flight Attendants Associaton. "She did not say they would pull the trigger. She did not say they wouldn't."

Eagan-based Northwest has lost about $3 billion on its operations since the start of 2001. And with fuel prices soaring, its losses continue to climb. This year, Northwest expects to pay $3.3 billion for fuel, 50 percent more than in 2004.

If Northwest files for Chapter 11 bankruptcy protection, it would be following a path taken by United Airlines and US Airways and perhaps soon by Delta Air Lines. Krabbe said he hoped Northwest, which employs some 15,000 people in Minnesota, wasn't trying to spook employees into giving up the $1.4 billion in annual wage and other concessions the airline says it needs to survive. So far, Northwest only has $265 million in savings from its pilots and $35 million from managers and other salaried employees.

"The company's standard mode of business seems to be threats, fear and intimidation," Krabbe said. "If this is nothing more than an attempt by the company to scare the unions into concessions, I would think the board of directors should be looking seriously at who is running the company."

Meanwhile, the union for Northwest's pilots told its members Tuesday afternoon that the board will decide whether to continue the airline's attempts to fix itself outside of bankruptcy or file for Chapter 11 bankruptcy protection.

"The board of directors is expected to make a decision after reviewing the company's current financial status and ongoing labor negotiations," the union said in an e-mail to members.

Northwest "has made no decision regarding a Chapter 11 filing," said spokesman Kurt Ebenhoch.

Only the board of directors can authorize a bankruptcy filing, said attorney Howard Wu, who was responsible for negotiating US Airways' aircraft lease and debt restructuring in its first bankruptcy.

"They are the only legal entity that has the authority to make that decision," said Wu, now a lawyer with Fafinski Mark & Johnson, a Twin Cities aviation law firm. Count Wu among those who expect Northwest to file before Oct. 17, when sweeping changes in business bankruptcy laws take effect. The changes reduce management's power over the process.

Another driver is Northwest's stalled efforts to extract annual wage and other concessions from its workers. Some 4,000 mechanics and cleaners struck the airline Aug 19.

Northwest has been maintaining its planes with a mix of replacement workers, third-party vendors and managers who are licensed as mechanics. The airline had threatened to replace striking mechanics permanently starting Tuesday.

Northwest has no end of troubles. In addition to its losses and industry-high labor costs, the airline's pensions are underfunded by $3.8 billion. And unless Congress gives it more time to make payments to the plans, Northwest will be on the hook to make $800 million in payments next year and $1.7 billion in 2007.

Meanwhile, the airline's free cash is down to about $1.7 billion. And its long-term debt has ballooned to about $9 billion.

Speculation about a Northwest bankruptcy filing drove the struggling carrier's shares down 53 percent Tuesday, to $1.74.

To be sure, the speculation was enflamed by regulatory disclosures that Northwest had defaulted on a $19 million payment to Mesaba Airlines, a carrier that provides regional air service to Northwest. Mesaba flew some 5.4 million passengers for Northwest in 2004.

This content continues onto the next page...

We Recommend