Northwest Misses Payments on Debts
Northwest Airlines Corp. said Tuesday that it chose not to make $42 million in debt payments in recent days, suggesting that the carrier was conserving its cash ahead of a potential bankruptcy filing. Bankruptcy worries sliced more than half the value off Northwest shares.
Northwest’s board planned to meet this morning to decide whether to file for bankruptcy protection, said Will Holman, a spokesman for the Air Line Pilots Assn. union, which has a member on the board.
The carrier, whose mechanics have been on strike since Aug. 20, said it also must make a $65-million pension contribution Thursday or risk having a claim made against its assets, according to a filing with the Securities and Exchange Commission on Tuesday.
Such defaults could trigger other debt covenants that would force a bankruptcy filing.
“If the company fails to make this payment, a lien would automatically arise against its assets unless the company had previously sought bankruptcy protection,” Northwest said of the pension payment in the filing.
Northwest spokesman Kurt Ebenhoch would say only that the airline “has made no decision” on a bankruptcy filing.
Shares of Northwest Airlines Corp. fell $1.74, or 53%, to $1.57.
Northwest has said previously that bankruptcy is a possibility. The company has raised its $1.1-billion target for annual labor cost savings to a new, undisclosed figure, as rising fuel prices have battered the airline.
The delayed payments included $19 million owed to regional partner Mesaba Aviation Inc., which gets its aircraft and schedule from Northwest and operates under the Northwest Airlink brand. A filing by Mesaba parent MAIR Holdings Inc. said Northwest had until Sept. 20 to make the payment or “Mesaba may exercise available remedies against Northwest.”
Northwest said it missed other payments totaling $23 million related to aircraft financing that were due Saturday through Monday. The airline said it had grace periods of five to 10 business days before the payments are in default.
Northwest said it had not yet decided whether to make the payments before the deadlines. Northwest is analyzing its debt, lease and other obligations to decide which ones to try to restructure, it said. The payments that were missed are ones the company would try to restructure.
The potential bankruptcy news comes as Northwest is weathering a mechanics’ strike. Northwest said it began hiring permanent replacements Tuesday.
With the walkout in its fourth week, about 200 mechanics rallied Tuesday at the union’s strike headquarters in a hotel parking lot near Minneapolis-St. Paul International Airport, where their leaders told them that Northwest’s fill-in maintenance operation couldn’t last.
“If we stay strong, if you don’t cross that picket line, the company will have no choice but to contact us,” said Jim Young, chief negotiator for the Aircraft Maintenance Fraternal Assn.
