Northwest and Delta Closer to Bankruptcy Filings

Northwest Airlines and Delta Air Lines are preparing to file for bankruptcy protection as soon as Wednesday, people close to the companies said Tuesday. Northwest and Delta reportedly are finishing the details of their bankruptcy cases, including the financing that they will require to operate under bankruptcy protection. While such details could cause delays, the fundamental work of preparing each bankruptcy case is done, the people close to the companies said on condition of anonymity, as the plans were not yet complete.

A Northwest spokesman said Tuesday that the company had made no decision on a Chapter 11 bankruptcy-court protection filing. Likewise, a spokeswoman for Delta said no decision had been made. Both airlines would file for Chapter 11 protection in U.S. Bankruptcy Court in New York. Their cases would be assigned to different judges, however. If Northwest and Delta both file for bankruptcy, four of the seven biggest U.S. airlines would be operating under bankruptcy protection. That would leave American, Continental Airlines and Southwest Airlines as the major U.S. carriers operating outside bankruptcy protection. United Airlines, which is the second-biggest carrier after American Airlines, has been operating under Chapter 11 protection since December 2002. Last week, United submitted a reorganization plan and said that it hoped to exit court protection early next year. Meanwhile, US Airways, which sought bankruptcy protection last year for the second time in two years, expects to emerge from court protection this autumn, when it plans to merge with America West. The airlines will operate under the US Airways name. While a bankruptcy filing by Delta had been expected to come this week, a filing by Northwest had been thought to be several weeks away. But airlines have been feeling the effects of the spike in jet fuel prices. Even before Hurricane Katrina, U.S. airlines were paying about 50 percent more for jet fuel this year than in 2004. Neither Northwest nor Delta have hedging contracts that would allow them to lock in the price of fuel, meaning that they must immediately cover price increases in cash. With the carrier’s cash draining away in recent weeks, Northwest executives apparently decided to file quickly for bankruptcy, according to people briefed on the airline’s strategy. Northwest’s court filing would coincide with a strike by its mechanics’ union, which began Aug. 20. Workers have been striking over a demand by the airline for $176 million in wage and benefit cuts, part of $1.1 billion in concessions that it is seeking from its unions. The airline has remained in operation using supervisors, contractors and 1,200 replacement workers as substitutes for striking members of the Aircraft Mechanics Fraternal Association. Over the weekend, however, Northwest increased its demand in wage and benefit cuts to $203 million and said it needed a total of $1.4 billion in cuts. The airline also said it could offer only about 1,080 jobs to the mechanics’ union, which represented 4,430 mechanics, cleaners and other workers at the airline before the strike. The union walked away from the bargaining table before the strike, saying the airline’s demands were too severe. The airline said it planned to give permanent jobs to some of the replacement workers starting late Tuesday. Once companies seek bankruptcy protection in U.S. courts, they can ask a judge to set aside contracts and impose lower terms, unless agreements are reached. Northwest is likely to seek the same $1.4 billion in cuts once its bankruptcy proceedings begin, the people briefed on the airline’s strategy said. Northwest is one of the biggest U.S. carriers operating international routes and is one of only two airlines with extensive routes throughout Asia. The other is United. Northwest operates in a code-sharing agreement with KLM Royal Dutch Airlines and shares flight designations with Delta and Continental.