Northwest Airlines Files For Chapter 11 Reorganization To
Facilitate Restructuring
The following statement was issued by NWA in the wake of its
Wednesday filing for Chapter 11 bankruptcy relief with a Federal
Court:
- Normal operations continue
- Skyrocketing fuel costs overtake voluntary restructuring
plan
- Goals: competitive costs, efficient business model and strong
balance sheet
- $1.5 billion in cash and investments available for use
Northwest Airlines Corporation, the world’s fourth largest
airline, announced today that it and certain of its subsidiaries
have filed voluntary petitions for reorganization under Chapter 11
of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
Southern District of New York.
The company emphasized that it will continue to operate normally
to serve customers, honor tickets, fly its competitive schedule and
continue the WorldPerks frequent flyer and WorldPerks Visa
programs. In addition, its tour subsidiary, MLT, will also continue
normal operations.
“As we have consistently stated, the airline industry has
changed permanently,” said Doug Steenland, Northwest
president and chief executive officer. “Northwest must
significantly lower its costs to compete with other carriers. Many
of these are legacy carriers that have already used the bankruptcy
process to achieve changes in their cost structures or newer,
low-cost carriers which have much lower labor and operating costs
than legacy carriers.”
“We had developed a plan to restructure Northwest outside
of Chapter 11 and have been implementing that plan,”
Steenland added. “Unfortunately, in addition to an
uncompetitive cost structure, our efforts have been overtaken by
skyrocketing fuel costs. We can no longer continue to incur sizable
losses and reductions in liquidity as we attempt to complete
implementation of the plan. By filing for Chapter 11 now, we ensure
that we have the means to complete the transformation of Northwest
quickly and effectively.”
Northwest expects that its fuel bill for 2005 will be
approximately $3.3 billion. This compares to $2.2 billion for 2004
and $1.6 billion for 2003.
“The Chapter 11 process will allow us to realize three
major goals essential to the transformation of Northwest Airlines:
first, a competitive cost structure including both labor and
non-labor costs; second, a more efficient business model which will
allow us to continue to deliver superior choice and service to our
customers; and third, a strengthened balance sheet with debt and
equity levels consistent with long-term profitability.”
“We have many
valuable assets that position us well in today’s marketplace,
including our highly-skilled, dedicated employees, strong hub and
spoke network, domestic and international alliances, world-class
airport facilities, valuable cargo business, strong presence in
U.S. Heartland markets and extensive trans-Pacific and
trans-Atlantic international routes. Once our reorganization has
been completed and a competitive cost structure is in place,
Northwest will emerge as a strong competitor with a solid
future.”
Steenland said the decision to file for Chapter 11 protection
was unrelated to the ongoing strike by members of the
airline’s mechanics union. He stressed that the
airline’s operations are working well and that the company
has experienced no adverse impact on its operational
performance.
In addition to its other labor cost restructuring, Northwest
said that it must continue its transition from defined benefit
pension plans to defined contribution plans. Absent any changes to
ERISA, particularly the deficit reduction contribution provisions,
Northwest is required to contribute $3.3 billion to its defined
benefit plans from 2006 through 2008. Notwithstanding having filed
its Chapter 11 petition, the airline will continue to seek
favorable pension legislation.
As of September 14, the company’s unrestricted cash and
short-term investments balance was $1.5 billion.
Steenland concluded, “Although this filing will change the
process of our restructuring, two things will not change. We will
continue to provide safe, reliable air transportation to the more
than 55 million passengers carried annually to their destinations
around the world. And we will continue to work toward consensual
collective bargaining agreements with all of our employees
represented by labor unions.”