Dec. 27 -- The pilots union at Northwest Airlines Inc. has sold a part of its bankruptcy claim in the company's Chapter 11 case, resulting in about $150 million that the union can distribute to its members.
In a message to workers Sunday, Northwest CEO Doug Steenland said the Air Line Pilots Association found a buyer to purchase 20% of the union's $888-million claim.
In bankruptcy cases, people or vendors who are owed money file claims against the company. In this case, Northwest and the pilots negotiated the claim earlier this year as part of the union's contract. The ground workers union, in its contract, negotiated a $181-million claim and also seeks to sell part of it.
Typically, a group that has a claim receives stock in the reorganized company, usually worth so many cents for every dollar of the claim.
But there are buyers, often investment banks, that purchase claims to trade or to receive shares in the new company.
In the pilots' case, neither the company nor the union would name the buyer.
The sale will pass money on to pilots who have taken two wage cuts -- 15% and 24% -- in the last two years and agreed to work-rule changes to save Northwest money.
"While we are pleased with the pending claim sale, we would prefer the opportunity to sell more, and there remains much more to be done towards restoring the careers and quality of life for Northwest pilots," said Dave Stevens, who leads the pilots union at Northwest. "A sale of part of the ALPA claim does not allow our pilots to be at home with their families more or work less hours per day."
About 6,000 pilots are eligible for a payout and must opt-in on a Web site the union recently posted to receive a share of the claim. The amount a pilot would receive is based on a formula that factors in seniority and wage rates. Court documents say the money will go to pilots as direct payments or into their retirement plans.
If all eligible pilots opt-in, and they were to receive an equal share, the payout would average about $25,000 per pilot.
The sale takes advantage of a jump in the price that buyers are willing to pay for a claim in Northwest's bankruptcy.
"Instead of 10 to 15 cents on the dollar, they are fetching 70 to 80 cents on the dollar," Steenland said. The buyer in the pilots' case will pay 85 cents on the dollar, he said.
"The high valuation being put on these claims reflects the confidence investors feel in Northwest's future," Steenland said.
Industry observers say that demand for such claims was boosted by US Airway's bid to buy Delta Air Lines, which also is reorganizing in Chapter 11. The move sent speculation throughout the airline industry that Northwest might be next.
"What they're probably betting on is more mergers in the airline industry, including possibly Northwest," said Rajesh Aggarwal, associate professor of finance at the University of Minnesota's Carlson School of Management.
Earlier this month, Northwest asked a bankruptcy judge to hire a consultant that specializes in mergers.
In mid-November, US Airways interest in Delta boosted Northwest's stock, which rose from 99 cents Nov. 15 to $6.37 in mid-December.
Copyright (c) 2006, Detroit Free Press.
Copyright 2005 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.
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