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Northwest shares plunge after bankruptcy

Posted on: Thursday, 15 September 2005, 08:34 CDT

NEW YORK (Reuters) - Shares in Northwest Airlines plunged over 50 percent in premarket trading on Thursday as investors dumped them a day after the carrier filed for bankruptcy alongside Delta Air Lines Inc.

Delta and Northwest, the third- and fourth-largest U.S. air carriers, both declared bankruptcy on Wednesday as the industry's struggle with soaring oil prices and low-cost competition led to one of its darkest days.

While Delta's filing had been long expected, Northwest's came as a surprise to many on Wall Street, including analysts at blue-chip securities firms J.P. Morgan and Morgan Stanley, who reiterated their "overweight" ratings on its stock.

Prudential also had an "overweight" rating on Northwest until Thursday, when it cut the stock to "underweight."

The Wall Street analysts stuck by the Eagan, Minnesota airline even after Northwest's pilots disclosed the airline's board was set to consider whether to seek a bankruptcy filing on Wednesday.

Northwest shares plunged 52 percent to 90 cents in premarket trading on the Inet electronic brokerage system.

Bankrupt companies' shares often continue to trade, as they have with airlines UAL Corp. and US Airways Group Inc., but their value is typically wiped out.

Delta is set to embark on Thursday on what may be a long march through Chapter 11 with its first public hearing in U.S. Bankruptcy Court in Manhattan. The hearing will clear the way for Delta to start rejecting aircraft leases as it begins to shrink its fleet as part of the reorganization process.

Both Delta and Northwest made clear on Wednesday that they will focus on eliminating what they see as an excess of available seats by reducing flights and switching to smaller planes on some routes.

Those moves will almost certainly lead to further layoffs at both, though neither airline said how many. That would add to headaches for once well-paid airline workers.

Their pensions are also up in the air as both Delta and Northwest have made clear they are unable to honor their current retiree commitments.

Northwest's Chief Executive Doug Steenland said on Wednesday that the airline hoped to avoid a wholesale dumping of pensions like the one earlier this year at United Airlines that infuriated workers and politicians.

Both airlines may cancel orders for planes from Boeing Co. and European archrival Airbus, making the bankruptcies a potential negative for their shares, though analysts said the planemakers would have little trouble placing their aircraft elsewhere.

Source: REUTERS

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