Northwest Airlines is planning bankruptcy-court protection, "becoming the last of four major carriers to reorganise to cope with the long crisis in the US airline industry." (5/28/2007)
The airline has received all required aprovals of its restructuring and expects to exit Chapter 11 bankruptcy by May 31. Since Northwest filed for creditor protection in September 2005, it has cut 2.4 billion dollars in annual operating expenses including 1.4 billion in labor costs. It has shed 4.2 billion dollars in debt in part by getting rid of 71 planes and lowering payments on other aircraft, according to media reports.
According to Star Tribune, the company´s business plan calls for continued black ink through 2010. "Whether that forecast will translate into a healthy performance by Northwest´s new stock remains to be seen," it reported.
"Even if oil continues to trade at $65 a barrel or more, Northwest´s business plan projects that its pretax margin -- 2.4 percent last year -- will be 7.7 percent this year and rise to 9.9 percent by 2010. Revenue is projected to increase from about $12.6 billion last year to more than $14 billion by 2010," added the same report. "Northwest´s recent operating results give support to management´s outlook, in that the airline has posted a profit before bankruptcy costs for several quarters in a row. The first-quarter operating results were the best since 1998. The airline posted a pretax profit of $100 million excluding reorganisation items, compared with a pretax loss of $129 million a year ago."
Analysts say Northwest appears to be in good shape to compete after bankruptcy.
"Northwest will exit bankruptcy with an improved operating cost structure (due mainly to labor concessions) and reduced debt and lease obligations," according to an AFP report. "The company´s operating performance recovered more quickly than that of other reorganising airlines, and it is currently among the most profitable US carriers."
But it is reportedly said Northwest "still faces airline industry risks of high and volatile fuel prices and a soft US economy, and is carrying a still-substantial overall financial burden of debt, leases, and retirement obligations."
"Northwest Airlines is emerging from bankruptcy with what we expect will be industry-leading margins, having effectively used the bankruptcy process to rationalise its fleet and cut labor costs," Robert Barry, an analyst with Goldman Sachs & Co., said, however, that Northwest´s attractive margins, based largely on low labour costs achieved through union concessions, may not be sustainable and that the labor cutbacks could wind up hindering the airline´s operating performance. Barry has reportedly set a $26 target price on Northwest stock.