Northwest Airlines Corp., the last major US carrier still in bankruptcy after the September 11 attacks that distressed the industry, won authorization to emerge from 20 months under court protection. US Bankruptcy Judge Allan Gropper in New York has agreed to Northwest’s exit plan today over union objections. The Eagan, Minnesota-based company cut costs by $2.5 billion, mainly by worker concessions and won approval of a stock-for-debt swap from 97 percent of its creditors.
Northwest’s emergence from bankruptcy will represent the first time in nearly five years that a leading US airline would not be in bankruptcy. The airline has been restructuring process since September 14, 2005, when two major airlines Northwest and Delta Air Lines had filed for Chapter 11 on the same day. The airline industry has certainly been on a long road of resurgence after a long-drawn-out collapse that also tipped UAL Corp.’s United Airlines and US Airways Group into bankruptcy.
Almost all the airlines face cost challenges such as higher jet fuel prices and less elasticity in setting ticket prices. In the meanwhile, the industry’s success in lowering wages has created a brand new problem: draw and retaining workers, from flight attendants to pilots who are willing to work harder for less money. At the same time, passengers have been dejected with the delays and inadequate service that have beleaguered some US airlines.
According to the plan accepted by Judge Allan Gropper after a two-day hearing, Northwest’s secured creditors will be paid in full. Most of the unsecured creditors are likely to be paid 66 to 83 cents on the dollar in new shares of the reorganized company. However, existing shares will be canceled, leaving shareholders with nothing. After emergence from chapter 11, court protection, its shares will be traded on the New York Stock Exchange under the symbol NWA.
While seeking authorization of its plan, Northwest confronted opposition from its three biggest labor unions, which were pessimistic over plans to give 400 top managers a collective 5 percent equity stake in the recently reorganized company. The company estimates the stake is worth $297 million.
