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Despite Mechanics Strike, Northwest Shares Rise More Than 5 Percent

Posted on: Monday, 22 August 2005, 21:00 CDT

Aug. 23--The Northwest Airlines mechanics strike may have bothered some travelers, but it didn't upset investors.

The value of the Eagan-based airline's stock rose 5.2 percent Monday, though interest in Northwest shares seemed light. Shares closed at $5.66, up 28 cents.

Trading volume was 25 percent below average for the day; but Monday's trading was light throughout Wall Street.

Northwest's modest gain shows that stockholders, at least, are gaining confidence that the airline will get the labor cost savings it needs to avoid bankruptcy, said Andrew Meister, an airline analyst at Thrivent Financial for Lutherans, the Minneapolis-based investment company.

"If this gets negotiations or a settlement in Northwest's favor, it sets the ball rolling for reducing labor costs" at other unions, he said.

Northwest is trying to reduce annual wage and benefits costs by $1.1 billion. Its 4,400 mechanics opted to strike rather than agree to $176 million in annual concessions. The airline also is trying to win $143 million in concessions from its flight attendants during negotiations that are scheduled to resume later this month. Also on deck: its ground workers union, for $107 million.

So-called sell-side analysts who work Wall Street brokerages that sell Northwest stock were cheerleading Monday morning. Susan Donofrio at Fulcrum Global Partners said in a report that "management was as prepared as we thought they were" and said Northwest is broken, but repairable, and its shares could reach $17 within a year.

Not everyone offered such a rosy assessment.

Standard & Poor's warned it might cut Northwest's credit rating to junk status because of the strike. S&P noted that Northwest still faces the prospect of filing for bankruptcy and that negotiations aimed at getting more labor savings from pilots, flight attendants and machinists are moving slowly.

Meanwhile the price of fuel is rising quickly, raising the risk that $1.1 billion in concessions is not enough.

While lower credit ratings generally increase borrowing costs, Meister said Northwest's creditors likely will go to great lengths to help the company avoid bankruptcy. "It's better for everyone to have a going concern."

The Metropolitan Airports Commission, however, is requiring Northwest and other airlines to pay their bills within 30 days, MAC spokesman Patrick Hogan said. Thus far, the MAC, which runs the Minneapolis-St. Paul International Airport, has not needed to threaten any airline with taking away their gates for not staying current with the bills. "That's really the leverage that airports have."

Northwest shares enjoyed a bounce even before mechanics walked off the job late Friday, but remain more than 50 percent below their 52-week high of $11.83.

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NWAC, MHP,

Source: Saint Paul Pioneer Press (St. Paul, Minn.)

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