Northwest Airlines' unsecured bonds traded weaker as the company asked the bankruptcy court to impose permanent labor cost cuts if it is unable to gain concession from its retirees and unions, the Air Line Pilots Association and the Professional Flight Attendants Association. A trader said the unsecured bonds were, on average, five points weaker. Northwest's 6.625% '23 bonds were trading at 35.38 from the 37-38 range, according to NASD and Markit.
John Luth, chief executive of the Seabury Group, an advisory firm to the airline industry, testified in the U.S. Bankruptcy Court for the Southern District Court of New York that reducing Northwest's debt by $4.2 billion to $4.4 billion, increasing liquidity by $1.25 billion and obtaining competitive labor costs are the most important changes the company must make to finance future aircraft needs and exit from Chapter 11.
Luth told the court that Northwest's losses have left it in a weak financial position. "Northwest has lost $4 billion since 2001, and during its first four months of Chapter 11, lost $4-5 million per day," said Luth, according to a company release.
Northwest plans to restructure secured debt and raise new equity when it exits bankruptcy, resulting in $1.25 billion in net new liquidity. "While we believe Northwest's debtor-in-possession and exit debt financing can be arranged, the success of such financing is highly dependent on achieving Northwest's targeted savings," said Luth in the release. A Northwest spokeswoman said the financing needs of the airline have yet to be determined.