Checchi Says Buyout Won’t Endanger NWA : Tells Unions He’d Double Airline’s Size in 5 Years
Los Angeles investor Alfred A. Checchi, trying to win support for his historic $4.05-billion bid for the parent of Northwest Airlines, assured union leaders Tuesday his highly leveraged bid wouldn’t endanger the airline.
Co-chairman of the Northwest pilots’ union, H. T. Dodge, said he was impressed with Checchi after meeting with him for 1 1/2 hours in Bloomington, Minn., “but it is too early to tell how it will all work out.” He said Checchi indicated that he wanted to double the size of the airline during the next five years and agreed to let pilots review his financial plans for Northwest.
The pilots are worried that too much debt might cripple Northwest and have threatened to strike if the airline’s financial health is at risk. Those concerns are shared by Transportation Secretary Samuel K. Skinner, who has said he would closely review the bid to see if the new debt would hurt Northwest’s ability to operate. The transaction would make Northwest one of the most highly leveraged airlines and would be the largest price ever paid for a U.S. airline. An official at the DOT said the department would begin a review within the next 10 days.
Non-Voting Shares
Meanwhile, market sources indicated that Checchi would have little difficulty raising the $3.35 billion in bank debt needed to buy NWA, the parent of Northwest. In a filing with the Securities and Exchange Commission, Bankers Trust said it has received commitments for $500 million in debt for Checchi’s bid and is confident it can raise $2.85 billion more.
Backed by a Dutch airline and an Australian brewer, Checchi on Monday won a three-month auction for Eagan, Minn.-based Northwest, the nation’s fourth-largest airline. Checchi’s bid includes $700 million in equity, with $40 million of that coming from Checchi and two associates, Washington investment banker Frederic Malek and Gary Wilson, chief financial officer of Walt Disney Co.
Because foreign entities can’t own more than 25% of a U.S. airline, Checchi’s partners, KLM Royal Dutch Airlines and Australian conglomerate Elders IXL, will receive non-voting prefered stock in return for their equity contributions, Robert Friedman, one of Checchi’s lawyers, said. KLM is contributing $400 million, and Elders is contributing $80 million.
He added that KLM and Elders will be restricted to one seat on NWA’s board, which will consist of at least 10 members. Friedman said he was confident NWA’s new capital and board structure would comply with federal regulations. Refering to the question of foreign ownership, he said, “Of all the problems we have, this is the least.”
Concern about the bid apparently depressed NWA’s share price on Tuesday. It closed at $113.75, down 37.5 cents, in composite trading on the New York Stock Exchange, substantially below Checchi’s $121-a-share bid.
