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.

FMI: www.nwa.com; www.amfanatl.org