ALPA Wants To Cash Out Early

Northwest's pilot's union has asked management to allow the early sale of part of its nearly $900 million unsecured claim against the airline. The pilots, represented by the Air Line Pilots Association (ALPA), accepted the note -- to become airline stock when Northwest emerges from bankruptcy -- as part of its agreement to accept wage cuts.

In an email notification to its members ALPA said the union's investment banker advised "there is a favorable market for the sale of ALPA claims at present," according to the Twin Cities Pioneer Press.

Because the claim won't actually become stock until Northwest is out bankruptcy, ALPA is obliged to get permission from the airline before it can sell its claim.

Industry observers appear confused at ALPA's move. It's unclear what the union gains by selling early. As Northwest has yet to file a plan of reorganization with the bankruptcy court, buyers would likely wish to acquire unsecured claims at a discount.

According to Minneapolis Star-Tribune United projected "a rate of recovery for unsecured creditors in the range of four cents to eight cents on the dollar." ALPA to its members in September that rate was somewhat higher.

Aside from the large block of company stock the airline must pay ALPA a lump sum of $16.8 upon emergence from bankruptcy. The union already has a plan to distribute both the stock, proceeds from any sale of stock and cash from that lump sum. The formula calls for and equal distribution among all pilots for the first 50% with the remainder dispersed based on hourly rates and seniority.

Like many employees in the airline industry, Northwest pilots agreed to pay cuts to help the airline recover from bankruptcy. So far, those cuts amount to nearly 40% or more than $600 per year.

FMI: www.nwa.com, www.alpa.org