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AIRLINE IN BANKRUPTCY: NWA wants to trim 115 planes to reduce costs
Judge could decide Friday on plan to renegotiate leases; creditors upset
October 6, 2005
BY JEWEL GOPWANI
[FONT=helvetica,arial]FREE PRESS BUSINESS WRITER[/FONT]
Banks that are owed money on planes in Northwest Airlines Corp.'s fleet don't want a bankruptcy court in New York to give the carrier the right to return 102 planes if lenders don't accept lower payments.
A judge could decide Friday whether Northwest may cut 13 planes right away and let the nation's fourth-largest airline decide the fate of another 102 planes after negotiating new terms with its lenders.
A Northwest spokesman declined to say how many planes the airline really wants to keep if it could pay less for them and reduce its monumental aircraft payments and fuel bills.
That's something a group of creditors wants to know. They say the airline shouldn't be asking to dump planes until it develops a more complete plan for fixing its financial woes to emerge from bankruptcy.
"The process proposed ... makes it impossible for this court ... to determine whether the debtors have, in fact, exercised their sound business judgment," said the ad hoc committee in an objection filed Monday.
By eliminating these planes Northwest wants bring its fleet size and mix of planes in line with what it can afford and the number of travelers it is expecting to serve, Northwest said in its request to abandon the planes.
Northwest leases 263 planes and owns another 350 planes, according to its Web site, not counting planes in storage. The airline has said that nearly all of its assets, including the planes it owns, have been pledged as collateral to its creditors.
Saving on fuel costs could also be a priority for Northwest, airline experts said.
Though a concern for more than a year, rising jet fuel prices have become a more urgent problem for airlines as fuel prices reached an all-time high this week. Hurricanes Rita and Katrina cut refining capacity so much that the cost to refine a barrel of jet fuel neared the cost for a barrel of oil.
In a message to employees Monday, Northwest CEO and President Doug Steenland said the airline paid $59 to refine a barrel of oil into jet fuel, on top of the going price for a barrel of oil. A year ago, he said, it cost the airline $13 to refine a barrel of oil into jet fuel.
Fuel is a likely factor in the company's decision to make what appears to be the most drastic change to its fleet by eliminating all 35 small Avro jets that Northwest leases to commuter carrier Mesaba Airlines. The 69-seat planes are powered by four engines and consume a lot of fuel, said Virginia-based airline consultant Darryl Jenkins. Northwest has told Mesaba that it plans to eliminate the aircraft in mid-December.
Another driver for dumping leases could be whether it would cost more to pay for major maintenance checks or just give the planes back, said Rick Kruger, a bankruptcy attorney with Southfield-based Jaffe Raitt Heuer & Weiss' aviation group, which is not working on Northwest's case.
The list of 115 planes that Northwest wants to renegotiate payments for or eliminate includes a dozen 747s, a dozen DC9s and DC10s, 28 Boeing 757 aircraft and 28 Airbus planes. The planes are used for a range of routes from long international flights to short domestic flights.
The Boeing aircraft are generally on the older side and less fuel-efficient than newer planes. Northwest's DC9s are an average of 35 years old, according to BACK Aviation Solutions.
But the Airbus selections hint that the airline is posturing for the first major wrangle in bankruptcy.
"This starts the game where you kind of indicate what you might want to get rid of and see how people react," Jenkins said.
Eagan, Minn.-based Northwest filed for Chapter 11 bankruptcy protection Sept. 14 in New York.
Some creditors argue that it's premature for Northwest to try to give up a bulk of those planes.
If Judge Allan L. Gropper allows Northwest to reject these leases, a sticking point could be how the planes would be returned. Northwest said it would make most of the planes available for their owners to retrieve, court documents show. But those owners argue that they shouldn't be the ones paying to collect the aircraft. Contact JEWEL GOPWANI at 313-223-4550 or email@example.com