NWA Unions Want New Shares for Blocks of Long-Held Preferred-Stock

When Northwest Airlines entered bankruptcy in 2005, thousands of its union workers were holding shares of preferred stock that they got in 1993 in exchange for concessions.

Leaders of the ground workers and flight attendants unions said Tuesday that they are pressing ahead to recoup some value for their members for those shares.

One option for preserving a financial benefit is allocating stock in the newly reorganized Northwest to the workers.

"We want a fair opportunity to claim something that is rightfully ours from 14 years ago," said Stephen Gordon, president of District 143 of the International Association of Machinists and Aerospace Workers (IAM).

Shares of preferred stock would be canceled under the bankruptcy reorganization plan that Northwest filed Friday, but Northwest spokesman Bill Mellon noted that the employee stockholders "have a claim pending in the bankruptcy proceedings" that stems from a lawsuit.

Before Northwest filed for Chapter 11 in 2005, a New York judge ruled that Northwest had breached its contract with the ground workers and flight attendants unions for failing to buy back the preferred stock in 2003.

The flight attendants' claim in bankruptcy court amounts to $64.7 million, said David Borer, general counsel for the Association of Flight Attendants.

The IAM's Gordon said his union's claim is in excess of $200 million and covers preferred shareholders who were represented by the IAM in 1993. That includes equipment service employees, customer service agents, mechanics and other ground workers.

The preferred-stock issue is legally complicated. Borer said it's unclear how the union claims ultimately will be resolved. Gordon said that Northwest needs to meet its financial obligation to workers "if the company is serious about mending relations with the employees."

Northwest's Mellon said the airline appealed the ruling in favor of the unions. The appeal has been on hold during Northwest's bankruptcy.

About 4.8 million shares of the preferred stock still were in employee hands in 2003, when Northwest was supposed to buy back the stock for $46.96 a share. Citing its financial distress, Northwest did not repurchase the shares, but it was then obligated to pay employees a 12 percent annual dividend until it completed the buyback.

In its reorganization plan, Northwest said on Friday it intended to pay unsecured creditors with new stock, but it did not specify a formula.

George Singer, an attorney for Lindquist & Vennum in Minneapolis, said that other creditors may object to the preferred shareholders being included in the unsecured creditors pool. Singer, who is not a party to the Northwest bankruptcy, said some creditors may attempt to get the preferred shareholders pushed into a lower ranking among the classes of claimants.

An IAM official serves on the Northwest creditors committee, which is chaired by an Airbus representative. Gordon and Borer said Northwest has moral and legal obligations to its employees who made sacrifices 14 years ago.

"They shorted the employees $65 million and want us to continue to trust them in the future," said the flight attendants' Borer. He added that the employees view the matter as a "financial and trust issue."

Gordon said that resolving the stock issue is the top priority for the IAM members.

"We are not going to be able to move forward if this stock just becomes worthless paper," Gordon said. "The company has to take our concerns seriously."

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