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Tue, May 20, 2003

Northwest Squirreling Away Cash

Didn't Fund Pension Plan This Time

The IRS says it's OK -- Northwest Airlines skipped a payment to its company pension plan. It still owed the plan some $454 million; it's just not going to put that money away right now, as Northwest (like all airlines) is realizing the critical need to preserve cash in the current lousy industry climate.

In lieu of actual money, the airline's 10Q report, just filed with the Securities and Exchange Commission, says it has promised assets -- aircraft, engines, routes, slots -- to Pension Benefit Guaranty Corporation. That way, even the airline were to go gear-up, Pension Guaranty could sell the assets and put cash into the fund.

The reasoning behind the arrangement, the company said, was to avoid bankruptcy. It is said in the industry that Northwest needs all the cash it can get -- it's supposedly losing over $2 million a day, right now.

Northwest also filed details of a potential offer to exchange newly created pass through certificates representing interests in equipment notes secured by a number of the company's aircraft for an aggregate of $550 million of outstanding senior unsecured debt securities of Northwest Airlines, Inc.

Under the terms of the proposed offer, Northwest Airlines, Inc. intends to issue $576 million of Class D Certificates, representing interests in the assets of the 2003-1 Pass Through Trust, which will acquire a direct or indirect interest in notes secured directly or indirectly by 69 aircraft owned by Northwest Airlines, Inc. The registration statement states that $540 million of the underlying notes will be entitled to the benefits of Section 1110 of the federal bankruptcy code. The unsecured securities that Northwest Airlines, Inc. is targeting in connection with the offer are the 8.375% and 8.52% Notes due 2004, and the 7 5/8% Notes due 2005.

FMI: www.northwest.com; www.sec.gov

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