Two of the nation's largest airlines edged closer to the brink of bankruptcy yesterday as Northwest Airlines Corp. said it had decided not to make $42 million in required debt payments in recent days and Delta Air Lines Inc. shares sunk below $1 ahead of a long-expected petition for court protection.
The board of Eagan, Minn.-based Northwest was scheduled to meet today to decide on a Chapter 11 filing, said Will Holman, a spokesman for the Air Line Pilots Association union, which has a member on the board.
Delta's bankruptcy filing was expected this afternoon, according to an industry consultant who has been informed of the carrier's plans, but it could be pushed to tomorrow, depending on when Delta secures the roughly $2 billion in in debtor-in-possession financing it is seeking.
Northwest's delayed payments included $19 million owed to Northwest regional partner Mesaba Aviation Inc., which gets its aircraft and schedule from Northwest and operates under the Northwest Airlink brand. Northwest said it missed other payments totaling $23 million related to aircraft financing that were due Saturday through Monday.
Northwest, whose mechanics have been on strike since Aug. 20, said it also must make a $65 million pension contribution by Thursday or risk having a claim made against its assets, according to a filing with the Securities and Exchange Commission yesterday.
Such defaults could trigger other debt covenants that would force a filing for bankruptcy protection.
Northwest spokesman Kurt Ebenhoch would say only that the airline "has made no decision" on a bankruptcy protection filing.
Shares of Northwest tumbled 53 percent to close at $1.57 yesterday on the Nasdaq Stock Market.
Northwest has said previously said that filing for bankruptcy protection is a possibility. The company raised its $1.1 billion target for annual labor cost savings to a new, undisclosed figure, as rising fuel prices have battered the airline.
Airlines worldwide have been stung by surging costs for jet fuel in recent months, with the largest percentage increases coming in the last two weeks after Hurricane Katrina's assault on Gulf Coast refineries.
The potential bankruptcy news comes as Northwest is weathering a strike by its mechanics. Northwest said it began hiring permanent replacement workers yesterday. Ebenhoch said the process of permanently hiring replacements was "underway and proceeding smoothly."
J.P. Morgan Chase & Co. airline analyst Jamie Baker estimated that if Atlanta-based Delta seeks bankruptcy protection, it will reduce capacity by 15 percent, similar to the shrinkage of the two other major airlines in Chapter 11 protection, United and US Airways.
Delta shares fell 7 cents, or 8.2 percent, to close at 78 cents yesterday.
Baker said Delta has racked up nearly $10 billion in losses since January 2001. In downgrading his rating on Delta to underweight from overweight, Baker said he thinks Delta will continue to retire, sell or swap certain aircraft types as it simplifies its fleet.