Ailing Carriers Land Deals to Keep Them Flying : Airlines: Northwest changes its aircraft orders and gets a $250-million loan. At TWA, a pension agreement is secured.
Struggling Northwest Airlines on Monday canceled or delayed more than $6 billion worth of aircraft orders and obtained additional financing in the most recent moves to prop up the nation’s fourth-largest airline.
Meanwhile, another ailing carrier--Trans World Airlines--finalized agreements with creditors and federal pension officials that will clear the way for the venerable carrier to emerge from bankruptcy court protection next month, TWA executives said.
In axing or putting off orders for nearly 120 passenger jets, Northwest joined other major U.S. carriers--such as American, Delta and United--that have cut or postponed billions of dollars worth of new aircraft orders as the airline industry struggles through its worst slump ever.
“Canceling and deferring these orders was difficult,” said John Dasburg, president and chief executive of the Minneapolis-based airline, in a statement. “However, in today’s competitive environment, an environment marked by overcapacity around the world, it is simply no longer possible to economically justify all of these aircraft investments.”
Northwest’s decision was particularly painful for Airbus Industrie, the European consortium that saw orders for 74 planes canceled. The airline also delayed the delivery of 44 jets from Boeing aircraft.
Northwest, which was acquired in 1989 by a group led by Los Angeles-based investors Alfred Checchi and Gary Wilson, also obtained a $250-million loan and other financial relief from lenders, suppliers and investors--including KLM Royal Dutch Airlines, which owns 49% of the carrier.
The “existing vendors and investors have concluded that another $50 million each is worth the risk to protect their invested capital,” said John F. Ash, president of Global Aviation Associates, a Washington-based airline industry consulting firm.
The $250 million will also help Northwest make it through the slow winter months.
Northwest officials said they hope the new loans, reductions in aircraft orders and wage and benefit concessions from unions will eventually return the airline to profitability. Airline officials in recent weeks have denied reports that Northwest was on the verge of filing for bankruptcy protection from creditors or that Checchi and Wilson would resign as part of a new loan package.
At TWA, executives on Monday said they had overcome a dispute with federal officials concerning its underfunded pension plans that had threatened a reorganization plan unveiled in August. Under the agreement with the Pension Benefit Guarantee Corp., TWA Chairman Carl Icahn would contribute $80 million to the plans and would contribute up to $240 million should the plans fail. In addition, TWA will put up an additional $300 million for the plans.
Icahn would be ousted as chairman and majority owner of TWA under current proposals that require bankruptcy court approval. Employees would own 45% of the reorganized TWA and unsecured creditors would own the rest.
