Fitch Downgrades NWA Debt; Union Says Airline Hired Replacements

Fitch Ratings downgraded Northwest Airlines Corp. debt on Wednesday, saying the nation's fourth-largest airline is taking too long to cut worker pay while fuel costs remain high.


MINNEAPOLIS (AP) -- Fitch Ratings downgraded Northwest Airlines Corp. debt on Wednesday, saying the nation's fourth-largest airline is taking too long to cut worker pay while fuel costs remain high.

Fitch cut $1.7 billion of Northwest's senior unsecured debt to CCC+, from B. It also rated Northwest's $975 million secured bank line of credit at B-, and said its outlook for Northwest remains negative. All the ratings are well below investment grade.

Northwest had $2.1 billion in unrestricted cash as of March 31, so a bankruptcy filing is not imminent, Fitch analyst Bill Warlick said. But with losses of $458 million in its last quarter, Northwest is continuing to dip into that cash.

Eagan-based Northwest is seeking $1.1 billion in labor concessions, including $300 million it already won from pilots and managers. But negotiations with other workers are proving much more difficult. Northwest said last week that its talks with mechanics are at an impasse, although negotiations continued Wednesday.

Fuel prices in the first quarter were 40 percent - $180 million - higher than in the same period last year, Warlick said. Fitch estimated that Northwest could spend as much as $900 million more on fuel for the full year.

''Even with labor concessions baked in, the company's going to face a difficult road with fuel remaining at these levels,'' he said.

And Northwest has several debt maturities coming up through 2007. It has $360 million in debt payments remaining this year. It has $912 million in scheduled maturities for 2006, and $1.4 billion for 2007, Fitch said. Northwest can refinance $79 million of the 2006 debt and $567 million of the 2007 debt, Fitch said.

Warlick said Northwest and most other airlines except Southwest can no longer borrow without offering collateral, and most of Northwest's collateral is already pledged. For instance, its $975 million bank credit line is backed by Northwest's East Asian routes, DC-9s, 747s, and engines, Fitch said.

A Northwest spokesman declined to comment on the downgrade.

The mechanics union said on Wednesday that Northwest has apparently hired roughly 400 mechanics in anticipation of a possible strike. The company denied that.

Ted Ludwig, president of the Minneapolis Local of the Aircraft Mechanics Fraternal Association, said the company's internal listing of employees began showing mechanics with new hire dates around May 19. The recent hire dates caught mechanics' eyes because about 4,000 of them have been laid off in recent years and many would have a right to return to their old jobs if there were openings, Ludwig said.

Ads placed by contractors seeking mechanics and promising work on a major airline in Minneapolis have been running on employment Web sites, and Northwest has acknowledged making preparations in case negotiations fail.

Ludwig said the information on Northwest's computer system included names, hire dates, and employee numbers - information the system shares with all employees.

Ludwig said he has a half-inch stack of names sitting on his desk.

''Forty-thousand employees could have seen it last week,'' Ludwig said. He said the company pulled the information off its computer once the union started asking questions. He said the union hasn't used the information to contact any of the newly-hired mechanics.

Northwest issued a statement saying, ''Contrary to some reports, we have not added replacement workers to our payroll.''

One day before the Fitch downgrade, Merrill Lynch analyst Michael Linenberg had a more positive outlook on Northwest, upgrading it from ''Neutral'' to ''Buy'' in a report issued Tuesday. He said both bankruptcy and a strike are unlikely, although he said the threat of bankruptcy would help Northwest get concessions from workers.

''We view the likelihood of a strike as low given what has played out for employees at other airlines who failed to recognize that the industry has undergone radical change.''

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