Highly publicised problems at TWA and numerous successes at Northwest Airlines do not tell the full story at either carrier. TWA, though in the midst of a difficult financial restructuring in an attempt to stave off bankruptcy, may not be compromised in its negotiating position. Northwest is still carrying a significant debt load that may dilute the impact of recent successes.

In the leadup to a creditor and investor vote on its restructuring on 30 January, TWA hit a snag when two noteholder groups refused to support the plan. Managers are pushing to cut $500 million of the airline's $1.8 billion long-term debt in a one to 46 reverse stock split and the issuing of 300 million shares of new stock.

The debt-for-equity swap is supported by the airline's employee-owners, whose 45 per cent share will be diluted to 30 per cent. Also in support is the federal Pension Benefit Guaranty Corporation, whose insurance of TWA's pension liability will translate into 50 million shares in the restructured company.

TWA management also has put off the payback of $190 million owed to former owner Carl Icahn. Finally the company, with the aid of Fieldstone Capital, has negotiated delays in payments on most of the 135 leased aircraft in the carrier's 190 aircraft fleet. Sources say that a lease restructuring and various payment holidays will save TWA $65 million.

But in mid-January the holders of 8 per cent and 10 per cent notes, secured by TWA's international routes and owned aircraft, were saying a return on their investment was better assured by a bankruptcy filing. However, TWA management saw this as an attempt to gain leverage in negotiations, and suggested that the collateral was of limited value - the aircraft are old and route sales no longer yield much.

The latter view is supported by Northwest's agreement to buy Delta's Detroit-London route authority for only $1.6 million - down from the $9 million Northwest was willing to pay Pan Am before the route went to Delta in 1991.

Despite this and many other bright spots at Northwest, analysts are concerned that the carrier could be hurt by long-term debt of close to $4 billion, negative equity, and the fact that almost all its assets are encumbered. Renee Shaker, airline analyst for rating agency Moody's Investor Service, is concerned about the debt, which she says has only been relieved 'a modest amount' by the carrier's successful financings.

Last year, Northwest completed $1.7 billion in financing, including an IPO and a replacement credit facility that relieved almost $1 billion in debt repayments due in 1998. The airline was also relieved of raising another $250 million in capital by 1996, and refinanced a $350 million debt owed to Airbus.

Northwest made almost $260 million net in the first nine months of 1994, helped by the economy and a lack of low cost competition.

Northwest made almost $260 million net in the first nine months of 1994, helped by the economy and a lack of low cost competition.

Source: Airline Business