Northwest Airlines Files for Bankruptcy
Sep. 15–After a long battle with soaring fuel bills, industry-high labor costs and bruising competition, Northwest Airlines Corp. sought Chapter 11 bankruptcy protection Wednesday to peel away its expenses so it can compete against more efficient airlines.
“Once our reorganization has been completed and a competitive cost structure is in place, Northwest will emerge as a strong competitor with a solid future,” Northwest President and Chief Executive Officer Doug Steenland said in a statement issued minutes after Atlanta-based Delta Air Lines filed its own Chapter 11 case.
In the 24-page filing made in U.S. Bankruptcy Court in New York, Northwest Airlines Corp., based in Eagan, Minn., and parent of Northwest Airlines, listed debts of $17.9 billion and $14.3 billion in assets.
The move underscored a remarkable financial plummet for the industry after the Sept. 11, 2001, terrorist attacks. Three of the nation’s four largest airlines now are mired in bankruptcy — United Airlines, Delta and Northwest. American Airlines is the one not in bankruptcy.
Delta, which operates 25 flights a day at Detroit Metro Airport, also has been beset by high fuel and labor costs. It filed Wednesday afternoon, listing its total debt at about $28.3 billion and its assets at $21.6 billion.
Northwest owes its 100 largest unsecured creditors just over $2.3 billion. Those creditors include the U.S. Department of Homeland Security, which is owed $3.89 million; the Wayne County Airport Authority, $1.3 million, and Detroit Metropolitan Airport, $664,920.
The airline has requested a hearing today in Manhattan.
Northwest’s filing was expected after the airline told the government Tuesday that it had a $65 million pension payment due today. It also said it couldn’t pay bills for its airplanes and to its commuter carrier earlier.
Northwest expects to lose more than $1 billion in the first nine months of the year — or about $4 million a day. Its fuel bill is expected to reach $3.3 billion this year, compared with $2.2 billion in 2004.
Northwest has been asking its 31,000 unionized workers to accept layoffs, work-rule changes and pay cuts that would save at least $1.1 billion a year and give Northwest a chance to make money again. But months of talks only led to the pilots union granting $265 million in concessions.
Northwest’s 4,400 mechanics struck the carrier on Aug. 20 rather than accept the airline’s demands.
Steenland said the strike did not force Northwest into filing for Chapter 11.
The clearest sign of Northwest’s troubles came Tuesday in the airline’s paperwork with the Securities and Exchange Commission. The airline said it didn’t pay $42 million to finance its aircraft and did not pay its commuter carrier, Mesaba Airlines.
Northwest seemed to be racing against a deadline today to make a $65 million contribution to its pension funds. If it missed that payment, a lien automatically would be filed against Northwest’s planes and other property — potentially allowing them to be seized and sold — unless the airline sought bankruptcy court protection.
Filing for bankruptcy should have little effect on local passengers. Northwest, which handles 65.3 percent of passengers at Detroit Metro Airport, said its operations and frequent -flier programs would continue.
Bankruptcy could have the most impact on employees, suppliers and investors as the airline looks to the court to help it cut costs. Northwest could ask the bankruptcy judge to throw out its contracts and its pension obligations.
But the airline said Wednesday it still plans to pursue pension legislation that would keep it from dumping that debt onto the federal government.
Northwest’s stock would probably be wiped out and new shares given to creditors as partial payment for the airline’s debt. The company’s 87.3 million outstanding shares were worth as much as $7.09 each on March 23, and from that date, Northwest shareholders stand to lose $619 million in equity if the shares get wiped out in court. The stock closed Wednesday at $1.87 on the Nasdaq stock market.
Northwest warned employees and Wall Street that it would have to file for bankruptcy if it did not quickly get pension relief from the government and secure concessions from its unions.
The prospect of getting those concessions grew more difficult last week, when the airline said it would need to increase its demands beyond $1.1 billion and told its unions it would need $1.4 billion.
The airline has been seeking $107 million from its ground workers and $143 million from its flight attendants.
To reach those savings, the airline proposed cutting more than half of the union members belonging to the Professional Flight Attendants Association and outsourcing the work. That proposal gained the attention of a rival union, the Association of Flight Attendants, which said it is trying to lure Northwest flight attendants away from the PFAA.
Northwest’s union mechanics and plane cleaners struck the carrier after refusing to accept $176 million in concessions that would have eliminated about half their jobs and forced those who remained to accept at least a 25 percent pay cut. The airline has been operating using replacement workers.
In negotiations over the weekend, Northwest said fuel costs required workers to give back $203 million a year — a demand that would have eliminated 75 percent of those jobs and forced those who remained to accept at least a 28 percent pay cut.
Those talks broke off early Sunday when the Aircraft Mechanics Fraternal Association and the airline couldn’t agree on severance pay for workers.
Free Press staff writers John Gallagher, Jennifer Dixon and The Associated Press contributed to this report.
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