NWA Credit Rating Falls

Northwest Airlines Corp. received more bad news Tuesday when Standard & Poor's Corp. downgraded the carrier's credit rating further into junk status.

Also announced Tuesday, chairman Gary Wilson continued his sale of Northwest stock by shedding nearly 198,000 shares Friday and Monday, regulatory filings show.

Northwest's debt, pension obligations, losses and high labor costs led S&P to downgrade the airline's ratings.

"The outlook is developing," wrote S&P airline analyst Philip Baggaley. "Ratings could be lowered if the airline is unable to make further material progress in lowering its labor costs. Conversely, a satisfactory resolution of labor negotiations could, along with new pension legislation ... lead to a modest upgrade."

Northwest's corporate credit rating dropped two notches from B to CCC+, seven steps below investment grade. S&P cut Northwest's short-term credit rating one notch from B-3 to C, four notches into junk status.

S&P also reduced Northwest's bank loan rating two notches from B+ to B-. That rating applies to two loans that total $975 million, Baggaley wrote, and are secured by, among other collateral, a lien on Northwest's right to fly to destinations in Asia.

"Today's downgrade by Standard & Poor's reinforces the need for Northwest to quickly achieve competitive labor contracts with its unions and to receive congressional approval to freeze and pay the company's pension obligations over a longer period of time than is allowed under current law," the company said in a statement Tuesday.

The airline is lobbying Congress for legislation that would let it pay back $3.8 billion in underfunded pension obligations in 25 years instead of three to five years, which current law requires.

S&P released its report Tuesday afternoon. After rallying Tuesday morning to as high as $5.76, Northwest stock closed down 24 cents, or 4.3%, landing at $5.34 after it fell 75 cents, or nearly 12%, Monday.

Northwest has nearly $2 billion in debt that will mature during the rest of 2005 through 2007, Baggaley wrote. Without some legislative changes, he wrote, pension payments during the next two years will far exceed the $420 million the company is expected to pay into its pension fund this year.

As of March 31, Northwest had $2.1 billion in cash.

While the company in the past has been less exposed to pressures from low-cost carriers, that is changing as its competitors have cut their labor costs, Baggaley wrote.

The airline lost $458 million during the first quarter and $878 million last year.