Both airline bankruptcy beefcakes are in the news today, as they continue to make progress in their efforts to leave the halls of bankruptcy court for the last time.
On the Northwest Airlines’ front, Monday U.S. Bankruptcy Judge Allan Gropper ruled that the airline can begin seeking creditor approval of a plan to exit bankruptcy. The deal values the airline at about $7 billion.
Gropper said that once Northwest revises its disclosure statement to incorporate agreements reached Monday, the statement could be released to creditors along with a restructuring plan.
Northwest has said that it plans to cancel all existing shares in the company and issue 272 million new shares. A stock offering will also offer a percentage of shares at an estimated $27 a share.
Another hearing will be held this week to determine whether an examiner will be appointed to investigate merger discussions that may have taken place with Northwest. This is in response to a complaint filed with the court by a group of funds that invested heavily in shares of the bankrupt stock — anticipating a potential merger.
A reorganization plan could be mailed to creditors as early as April 6.
A hearing to confirm the company’s reorganization plan is scheduled for May 16.
The group of funds, along with the Association of Flight Attendants and the Air Line Pilots Association argued that the company’s disclosure statement did not go into enough detail about management compensation and stock options that will be a part of the deal.
At the judge’s instruction, Northwest consulted SEC lawyers, who approved the airline’s plan to wait until 20 days before the voting deadline to release more details.
While the SEC said it was okay, I wish the airline had issued the details now – and not at the last minute. The fact they are doing so can only mean that they anticipate a heavy cry of opposition over whatever the plans are.
Was Gerald Grinstein’s recent example made in vain?
Good News for Employees
Aside from the management payout details that are still not known, there was some good news for employees Monday.
Northwest 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% of the bonus as cash when the company emerges from court protection.
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.
It was 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 earlier. The company and union supported the move, and it will be considered in an hearing to be scheduled soon.
The IAM claim, estimated by the union to be worth $212 million today, would replace special Northwest shares issued as part of a 1993 deal when IAM workers made concessions in an effort to help the airline stay out of bankruptcy.