Winning Labor Battle, But Losing The War?
After three days of talks, negotiations between Northwest
Airlines officials and members of the Aircraft Mechanics Fraternal
Association (AMFA) broke off Saturday, further adding to evidence
the three-week old mechanics strike has legs.
But does Northwest? Although the carrier's operations have thus
far been remarkably free of major incidents attributable to the
strike, it's obvious that the carrier's operations have been hit by
other factors, not the least of which includes surging fuel prices
from Hurricane Katrina.
In large part due to fuel prices as much as 84 cents-per-gallon
higher now that they were three months ago, analysts claim NWA has
been losing on average nearly $4 million a day, eating into the
carrier's already marginal-to-nonexistent profits and dwindling
cash reserves.
Many industry insiders have long predicted it was only a matter
of time before NWA would be forced to enter Chapter 11 -- and now
the time may be running out.
"I believe the fuel
costs will cause them to flip over into bankruptcy. There is a
greater than 50 percent chance that Northwest will file by Oct.
17," said bankruptcy attorney Chuck Moore to the Detroit News.
That date is important as it is when tougher bankruptcy laws go
into effect. Those laws would force Northwest to submit a
restructuring plan no later than 18-months from the date the
company files bankruptcy; if no plan is proposed by the company
within that time, any other interested party -- labor unions,
creditors and stockholders -- may file their own proposals.
If Northwest files before the 17th, on the other hand, the
company could effectively stave off any reorganization plans by
asking the court for extensions on filing the proposal, extensions
that are often granted. Such an option does not exist after October
17th.
Of course, bankruptcy would not necessarily mean the end of
Northwest Airlines -- and in many ways, it would likely help.
Immediately after a company files Chapter 11, it can ask the court
to hold off its creditors and rearrange payment schedules, similar
to personal bankruptcy protections. A company is also allowed to
continue normal operations in the interim.
In the case of
Northwest, it could also turn over it's $3.8 billion employee
pension liability to the federal government, freeing up some
long-term cash. The courts could also help nullify contracts,
making it easier for the company to obtain employee concessions
(something that AMFA is no doubt keeping an eye on.)
But there are downsides as well, including the unlikely but real
threat that a bankruptcy judge could order Northwest to be
liquidated at any time. The carrier also becomes responsible for
its creditors' legal fees, in addition to the already high payments
to its own attorneys.
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