Airline May Ask Court To Rule Its Stock Worthless
Northwest Airlines
continues to pace rival Delta Air Lines -- both filed for
bankruptcy on the same September 2005 day, and both should exit
Chapter 11 about the same time. To that end, Delta filed its
reorganization plan with the US Bankruptcy Court last month... and
Northwest says it expects to follow suit by next week.
"We intend to file the reorganization plan by January 16," said
Bill Mellon, managing director of media relations for Northwest, to
The Detroit News. He would not comment further.
Sources close to the proceedings say Northwest's plan may
include a request to the court to declare its current stock
worthless, much as Kmart did during its own climb out of
bankruptcy.
If it's allowed to void its current stock obligations, Northwest
could then raise millions in an initial public offering -- an
attractive option for the carrier, but one decidedly less so for
shareholders who have stuck by the airline. Affected shareholders
would likely be allowed to buy the new stock at a discount.
There are promising signs the airline may not resort to such a
drastic move, however. One is that value of Northwest's stock has
steadily climbed in the past year -- from a low of 36 cents per
share, to $4.45 as of Monday. That's not great... but certainly
better than this time a year ago.
More importantly, Northwest reported an operating profit two
weeks ago, and paid out approximately $22.5 million in
profit-sharing payments to its 30,000 employees. The airline is
also sitting on $2.2 billion in unrestricted cash... most of which
was generated through contract concessions.
All Northwest employees -- save its flight attendants -- are
operating under new pay agreements, that save the carrier $1.2
billion per year.
Analysts say those factors point to Northwest emerging from
bankruptcy sometime this year.
"There is no reason now they shouldn't be coming out of
bankruptcy soon," bankruptcy attorney Barbara Rom said. "Because of
the steps they've already instituted, there is only so much more
that can be done at this point."
Rom cautioned shareholders from becoming too optimistic,
however.
"Just remember the last in the food chain are the old
shareholders," she said. "They are at the bottom of the chain. What
you're really dealing with is the future value of the company. Who
receives that value assuming Northwest is profitable going
forward?"