Judge Rules Airline Must Redeem Stock

Northwest employees agreed to a preferred stock sale in 1992 and 1993 as the company faced financial difficulties. The company agreed the the stock would be redeemable in 2003. These types of agreements are found as part of wage cut negotiations throughout all sectors. Generally it is favorable for employees because the company is allowed to restructure and stock goes up. 

Northwest is still having financial difficulties in the much beleaguered airline industry of 2005. In an AP report, it is reported that when 2003 came around, the board of Northwest decided that redeeming the shares would violate legal restrictions on stock buybacks.

The unions representing the flight attendants and ground workers sued and Judge Helen Freedman ruled that Northwest Airlines Corp must redeem 226 million dollars in preferred stock.

"This is an important decision… that vindicates the rights of employees who devoted many years to this airline, in good time and in bad", said Howard Graff, a lawyer who represented the unions.

Flight attendants, pilots and ground workers agreed to the concessions worth $886 million and in return Northwest granted employees 4.8 million preferred shares of stock which could be redeemed in 2003 for cash or stock.  Judge Freedman ruled that Northwest was obliged to exchange the preferred shares for common shares if it was impossible to redeem it in cash.

"Northwest could not avoid repurchase by first electing to pay cash and then claiming that cash payments would be illegal," Judge Freedman wrote in her decision.

Although it isn't clear if Northwest will try to appeal the decision, the judge agreed to meet with lawyers from both sides on Tuesday.

A Northwest spokesman declined to comment on the case, but the airline is attempting to persuade employees to agree to more salary and benefit cuts to save the airline $950 million per year. At this time, only the pilots have agreed. The pilots union was not involved in this lawsuit.

FMI: www.nwa.com