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.

In a filing with the Securities and Exchange Commission, MAIR Holdings, Mesaba's corporate parent, said it may "exercise available remedies against Northwest" if payment is not made on or before next Tuesday. Mesaba would not elaborate.

As of last March, Northwest held 28 percent of the common shares of MAIR. And during fiscal 2005, Northwest accounted for 93 percent of MAIR's revenue. In an SEC filing late Tuesday afternoon, Northwest also disclosed it had not made about $23 million in payments related to aircraft financings due this past Saturday, Sunday and Monday. The airline has grace periods of five to 10 business days to make the payments without putting the obligations into default.

Northwest said it is analyzing its debt, lease and other obligations to determine which ones should be targeted for restructuring as part of a reorganization plan.

On Thursday, Northwest is obligated to make a $65 million pension contribution payment. If the company fails to make the payment, a lien would automatically be placed against its assets. That is, Northwest says, unless it has already sought bankruptcy protection.

Companies always try to conserve cash before they file for bankruptcy, and they typically start by nicking their most compliant creditors, Wu said.

"You start defaulting on the parties who can't hurt you," he said. "You start slow paying people. You try to stretch payments out. But you would never default, for instance, on your credit card processor."

Northwest needs to file for bankruptcy to fix itself, contends airline consultant Darryl Jenkins. "It's the easiest way to shed costs, pure and simple," he said. "And the only time you really have leverage (with unions and creditors) is when you're in Chapter 11."

Northwest would emerge from bankruptcy, he predicts.

"There are too many people with a vested interest in keeping airlines going to let them fail," he said. "The leasing companies, for instance, who have all these large portfolios of planes. They don't want a major airline putting a lot of planes back on the market that can't be sold."

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