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?"

FMI: www.nwa.com