NWA filing to offer snapshot of future

When Northwest Airlines files its bankruptcy reorganization plan in the next few days, it may mention that it’s considering options that could enhance its economic situation, but don’t expect it to share any details about linking up with rival Delta Air Lines or another carrier.

Still, Northwest’s plan will interest creditors and shareholders, who will find out how much they’ll get paid, if anything. The documents also will provide a snapshot of what the new company will look like: not flight and staffing schedules, but business strategy, board of directors and financial projections.

There’s no doubt the new Northwest will be leaner and meaner after cutting staff, shrinking its fleet and making other changes under bankruptcy court protection. A merger would further change its profile.

Eagan-based Northwest and Atlanta-based Delta have held “recurring talks” for weeks about a potential merger after both airlines exit bankruptcy reorganization by mid-year, the Wall Street Journal reported Wednesday, citing unnamed sources. Both airlines, which filed for bankruptcy protection on the same day in September 2005, have declined to comment.

Northwest said it plans to file its reorganization plan with the court by Tuesday. Delta filed its plan last month.

“It wouldn’t surprise me if they discuss consolidation in the airline industry in general,” said Darryl Laddin, head of the bankruptcy practice for Atlanta-based Arnall Golden Gregory. “Beyond a passing reference that it’s considering a variety of alternatives, including mergers, that would have economic benefits, I don’t think they’ll be a full-blown discussion of a merger.”

Bankruptcy experts say there’s nothing to stop Northwest from pursuing merger talks with Delta or any other airline after filing its plan. If Northwest and Delta agreed to a deal, then both airlines could file amendments to their plans to achieve benefits in bankruptcy, such as rejecting aircraft and gate leases, that would be difficult to do otherwise.

That route, “is the intelligent choice for Northwest,” said Anthony Sabino, a professor of business law and economics at St. John’s University in New York who worked on Eastern and Continental airlines’ bankruptcy cases in the 1990s. “It preserves all of their options (to say) ‘Here’s our stand-alone plan, but we’re willing to talk with anyone who comes knocking.’ “

Delta’s reorganization plan included some merger information after a firm hostile bid was made by rival US Airways. US Airways’ plan, filed nine months after its second bankruptcy in 2004, included information about a merger with America West that was announced in May.

Northwest’s reorganization plan and accompanying disclosure statement likely will include the value of the airline, the identity of officers in the new company, projected revenue, profit and expenses, a flying plan including regional partners, and perhaps the size of its labor force, according to bankruptcy experts. The plan should spell out how much creditors will be paid and whether it will be through stock in the new company or cash, or both, and if common shares will become worthless after bankruptcy, they said.

Bankruptcy experts say it is unlikely that Northwest’s common shares will be worth anything after creditors are paid. That’s despite Northwest’s forecast of a 2006 profit of up to $270 million before taxes and bankruptcy reorganization charges.

Exceptions include if unsecured creditors are paid in full, as in the case of bankrupt auto-parts supplier Delphi Corp., said Laddin, who worked on the Eastern Air Lines’ bankruptcy in the 1990s. But most airline bankruptcy cases result in average returns to unsecured creditors of less than 20 percent, he said. For example, estimated returns were about 10 percent in US Airways’ second bankruptcy and between 4 and 7 percent in United Airlines’ recent bankruptcy.

This scenario hasn’t kept speculation from driving Northwest shares up 10 percent to $5.54 on Thursday. Shares have ranged from 34 cents to $6.55 in the past 12 months.

The key in the process is the creditors. Once Northwest files its reorganization plan, creditors will have until March 16 to respond or file alternative plans. The plan must be approved by those representing two-thirds of the total dollar amount of claims for each class of unsecured creditors and a majority of the number of creditors. The bankruptcy court must give its final approval. The entire process could take as little as 60 days.