Tanker Clown
KC-10 IP
- Joined
- May 22, 2004
- Posts
- 1,653
ANNANDALE, Va. (MarketWatch) -- On the surface, at least, it certainly appears to be shaping up as a fairy tale ending to a long and torturous saga:
After battling numerous demons -- everything from bankruptcy to high oil prices, intransigent employee unions and the depressing effect on travel of the threat of global terrorism -- Northwest Airlines Corp. finally emerges victorious.
Not only did it slay those dragons, it survived and even thrived: A knight in shining armor (a.k.a. Delta Airlines) is supposedly about to make an honest airline out of it by agreeing to acquire the company.
Don't fall for this version of the story.
In actuality, not everyone is going to live happily ever after. Far from it.
Consider the investors on whose backs, and empty bank accounts, this apparently successful story has been built.
Upon emerging from bankruptcy last May, for example, Northwest paid its unsecured bondholders around 75 cents on the dollar in stock of the reorganized airline. What's more, that stock is trading for about 30% less today. What about those holding the common stock of the pre-bankruptcy Northwest Airlines? Their shares were cancelled, and they got nothing.
This latter detail is particularly important to keep in mind because the naïve among us might otherwise think there has been a handsome payoff to those courageous investors who bought Northwest's stock in the immediate wake of the company's bankruptcy filing in September 2005. After all, the stock was trading then for less than a dollar. Today the company's stock is trading for more than $17 per share.
But, needless to say, those shares that were trading for less than a dollar no longer exist; the shares that trade today are in no way comparable.
Elementary as the error would be to overlook this lack of comparability, I nevertheless suspect that many investors are guilty of it. How else to explain why so many investors were willing to invest in Northwest's stock in the immediate wake of their bankruptcy declaration, despite a virtual certainty that the shares they were purchasing would eventually fetch nothing? See Sep. 16, 2005, column
Another problem with the fairy-book version of this story is that Delta Airlines doesn't exactly fit the part of the knight in shining armor. It sought bankruptcy court protection at the same time Northwest did, and emerged from court protection only a few months prior to Northwest.
And in enumerating those on whose backs this story has been built, we should not forget the taxpayers. Delta would not have been able to emerge from bankruptcy had the federal government (via the Pension Benefit Guaranty Corp.) not become the trustee of its pilots' pensions.
That means that, depending on how the combined company performs, we all could end up paying for this deal.
That would not be a happy ending indeed.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
After battling numerous demons -- everything from bankruptcy to high oil prices, intransigent employee unions and the depressing effect on travel of the threat of global terrorism -- Northwest Airlines Corp. finally emerges victorious.
Not only did it slay those dragons, it survived and even thrived: A knight in shining armor (a.k.a. Delta Airlines) is supposedly about to make an honest airline out of it by agreeing to acquire the company.
Don't fall for this version of the story.
In actuality, not everyone is going to live happily ever after. Far from it.
Consider the investors on whose backs, and empty bank accounts, this apparently successful story has been built.
Upon emerging from bankruptcy last May, for example, Northwest paid its unsecured bondholders around 75 cents on the dollar in stock of the reorganized airline. What's more, that stock is trading for about 30% less today. What about those holding the common stock of the pre-bankruptcy Northwest Airlines? Their shares were cancelled, and they got nothing.
This latter detail is particularly important to keep in mind because the naïve among us might otherwise think there has been a handsome payoff to those courageous investors who bought Northwest's stock in the immediate wake of the company's bankruptcy filing in September 2005. After all, the stock was trading then for less than a dollar. Today the company's stock is trading for more than $17 per share.
But, needless to say, those shares that were trading for less than a dollar no longer exist; the shares that trade today are in no way comparable.
Elementary as the error would be to overlook this lack of comparability, I nevertheless suspect that many investors are guilty of it. How else to explain why so many investors were willing to invest in Northwest's stock in the immediate wake of their bankruptcy declaration, despite a virtual certainty that the shares they were purchasing would eventually fetch nothing? See Sep. 16, 2005, column
Another problem with the fairy-book version of this story is that Delta Airlines doesn't exactly fit the part of the knight in shining armor. It sought bankruptcy court protection at the same time Northwest did, and emerged from court protection only a few months prior to Northwest.
And in enumerating those on whose backs this story has been built, we should not forget the taxpayers. Delta would not have been able to emerge from bankruptcy had the federal government (via the Pension Benefit Guaranty Corp.) not become the trustee of its pilots' pensions.
That means that, depending on how the combined company performs, we all could end up paying for this deal.
That would not be a happy ending indeed.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
