Sun, Mar 27, 2005
Judge Rules Airline Must Redeem Stock
Northwest employees
agreed to a preferred stock sale in 1992 and 1993 as the company
faced financial difficulties. The company agreed the the stock
would be redeemable in 2003. These types of agreements are found as
part of wage cut negotiations throughout all sectors. Generally it
is favorable for employees because the company is allowed to
restructure and stock goes up.
Northwest is still having financial difficulties in the much
beleaguered airline industry of 2005. In an AP report, it is
reported that when 2003 came around, the board of Northwest decided
that redeeming the shares would violate legal restrictions on stock
buybacks.
The unions representing the flight attendants and ground workers
sued and Judge Helen Freedman ruled that Northwest Airlines Corp
must redeem 226 million dollars in preferred stock.
"This is an important decision… that vindicates the
rights of employees who devoted many years to this airline, in good
time and in bad", said Howard Graff, a lawyer who represented the
unions.
Flight attendants,
pilots and ground workers agreed to the concessions worth $886
million and in return Northwest granted employees 4.8 million
preferred shares of stock which could be redeemed in 2003 for cash
or stock. Judge Freedman ruled that Northwest was obliged to
exchange the preferred shares for common shares if it was
impossible to redeem it in cash.
"Northwest could not avoid repurchase by first electing to pay
cash and then claiming that cash payments would be illegal," Judge
Freedman wrote in her decision.
Although it isn't clear if Northwest will try to appeal the
decision, the judge agreed to meet with lawyers from both sides on
Tuesday.
A Northwest spokesman declined to comment on the case, but the
airline is attempting to persuade employees to agree to more salary
and benefit cuts to save the airline $950 million per year. At this
time, only the pilots have agreed. The pilots union was not
involved in this lawsuit.
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