Northwest Airlines Disclosure Plan Gets OK

U.S. Bankruptcy Judge Allan Gropper ruled that Northwest Airlines can release its disclosure statement and a restructuring plan to creditors – once the airline revises its disclosure statement to incorporate agreements reached Monday.   Two of the company’s labor unions, the Association of Flight Attendants and Air Line Pilots Association, as well as certain shareholders and bondholders had objected, arguing that the disclosure statement did not provide enough information.  

A reorganization plan could be mailed to creditors as early as April 6.

PBGC Objections

Last week the Pension Benefit Guaranty Corporation (PBGC) said that Northwest hasn’t been clear about the implications of its pension liabilities in the Chapter 11 disclosure statement it plans to send to creditors.   The nation’s private pension insurer wanted the airline to make it clear to creditors that the airline will remain stuck with “billions of dollars” in pension liabilities if it exits bankruptcy proceedings under its current Chapter 11 plan (see  PBGC Wants Northwest to Come Clean on Reorganization Plan ).

The unions had complained that Northwest was not disclosing the terms of a stock grant plan for 400 top managers.   According to the Associated Press, at the judge’s instruction, Northwest consulted Securities and Exchange Commission lawyers, who approved the airline’s plan to wait until 20 days before the voting deadline to release more details.

Northwest Airlines wants to cancel all existing shares in the company and issue 272 million new ones, with a stock offering to sell 27.78 million shares at $27 a piece.

An ad hoc committee of shareholders was the only remaining objector today. The group has had a lead role in securing an examiner to investigate any merger talks that may have occurred, according to the AP.   The group believes the airline is worth more than it says and has accused Northwest of “parking” any deals with other airlines until after it emerges from court protection.

Under Northwest’s plan, secured creditors would be fully paid, and unsecured creditors would get about 74 cents on the dollar. Current shareholders would get nothing.  

Bonus Program

Also today Northwest Airlines said it will give 4,000 non-union employees $77.4 million in cash and stock as part of a bonus program after the airline emerges from bankruptcy.   The employees, who took pay and benefit cuts as the company reorganized, would get 40 percent of the bonus as cash when the company emerges from court protection, lawyer Bruce Zirinsky said in court.   The remaining 60% would be issued as new common stock in the company one year later, as long as the employee is still with the company.

Zirinsky also announced that flight attendants and certain workers represented by the International Association of Machinists could receive a claim of an undisclosed amount, partially restoring pay and benefits that the company extracted as part of a 1993 deal designed to help Northwest stave off bankruptcy, according to the AP. The company and union supported the move, and it will be considered in a hearing to be scheduled soon.