Liquidation is Threatened By Northwest

By Tim McLaughlin, St. Louis Post-Dispatch

Oct. 13–Northwest Airlines Corp. on Wednesday threatened an “orderly liquidation” of the company if it does not get about $1.4 billion in concessions from its workers.

The world’s fourth largest airline asked a bankruptcy judge in New York City for permission to reject current union labor contracts that cover most of its 35,105 employees. Northwest still wants to negotiate agreements with the unions, but said its financial outlook has become increasingly dire as it expects to lose $8 million a day during the slow winter travel months.

“Northwest cannot wait until it is on the brink of extinction before seeking relief,” the airline said in court papers. “Northwest’s remaining cash is being rapidly depleted. If it does not quickly reduce its costs … Northwest would have to begin an orderly liquidation, and approximately 35,000 employees would lose their jobs.”

Ray Neidl, an airline analyst at Calyon Securities, said the request to abandon labor contracts was expected. “They have to move quickly in this area,” he said.

Northwest also plans to reduce its flight schedule in the fall, decreasing domestic capacity among its big jets by up to 10 percent. At Lambert Field, Northwest has about 10 daily flights on the large jets.

Northwest and Delta Air Lines filed for Chapter 11 bankruptcy protection last month, blaming sky-high fuel costs and depressed ticket prices from fierce competition with low-cost carriers, such as Southwest Airlines and JetBlue Airways. The bankrupt airlines say they need to slash labor costs and reduce debt to reorganize and emerge from bankruptcy in good enough shape to compete.

And like United Air Lines and US Airways before them, Northwest and Delta could use the bankruptcy process to shed billions of dollars in pension obligations.

Richard Turk, a spokesman for Local 9 of the Aircraft Mechanics Fraternal Association, said feelings are mixed about whether the airline really would liquidate. Local 9 represents some of the more than 4,000 Northwest mechanics on strike since late August.

“Some feel they may liquidate,” Turk said. “Others just see it as a threat.”

Since 1999, Northwest said round-trip fares in some key markets have plunged 26 percent to 32 percent because of competition from low-cost carriers. The fare for a round-trip ticket between Northwest’s Minneapolis hub and New York has dropped to $449, down 30 percent since 1999, the airline said in court papers.

Northwest has a $14 billion debt burden and a dwindling cash balance, which has been cut by $1 billion since the beginning of the year to $1.5 billion. The airline said its “cash position is becoming increasingly precarious.”

Northwest said it has the highest labor costs in the industry. The average cost of compensation for one of its employees — wages plus benefits — is nearly $100,000 a year. That’s 62 percent more than the average at low-cost airlines, the company said.

Northwest pilots would see the greatest impact under the airline’s concession proposals, reducing their base pay an average of 28 percent. Flight attendants would see a 17.5 percent reduction.

“The mere threat of a strike should not affect the court’s analysis,” Northwest said.

—–

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

Copyright (c) 2005, St. Louis Post-Dispatch

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

NWACQ,