Northwest's bonds last week dropped five points then bounced back two points to trade in the 46-47 range. The bonds dropped over concerns the company is short of cash, but rebounded on news that it had made progress in talks with its striking mechanics. Its bank loans were knocked back a few points to trade in the 97-98 range.
Roger King, an analyst at CreditSights covering the airline industry, said the market is worried about the company's position. He said it has $1.7 billion of cash on hand. "People think this is low," said King.
Soaring fuel prices have added to worries that the troubled airline is close to bankruptcy (CIN, 9/5). But one trader held out hope that the airline can be saved from failure. "They still have to jump through a lot of hoops they have to get their interests aligned with all their unions and they need the price of oil to come off," he said. "But it is still not a done deal as people think. I know I am in a minority, but I am still a believer in the company."
Northwest has managed to keep most of its flights operating despite the strike by its mechanics. They walked off the job on Aug. 20 over Northwest's plans to cuts wages and benefits.The airline has employed replacement mechanics to tide the company over until a resolution is found with the striking employees.
One trader said it is likely that ailing airlines that are forced into bankruptcy will seek federal aid, as they did after Sept. 11. "The airlines that go into bankruptcy will be bailed out by a federal aid package," he said.