NWA arranges new line of credit
Liz Fedor, Star Tribune
November 24, 2004 NWA1124
Northwest Airlines said Tuesday that it has restructured a $975 million line of credit -- a deal that improves the airline's financial condition as it girds for another tough year marked by high fuel costs and weak pricing power.
"This removes a liquidity crunch in 2005, but it doesn't return them to profitability," said Joel Denney, an airline analyst for Piper Jaffray & Co. in Minneapolis.
The new financing allows the Eagan-based carrier to move ahead with cutting the wages of its pilots and salaried employees on Dec. 1. Earlier this month, Northwest pilots ratified a two-year contract that reduces the airline's pilot costs by $265 million a year.
But the contract included a major condition -- the 15 percent pay cut for pilots could not be implemented until Northwest successfully restructured the $975 million in debt.
Now it has done so, with a new term loan that includes principal payable over a six-year period. The new loan replaces the revolving line of credit that was scheduled to mature in October 2005.
In addition to cutting pilot pay, Northwest will simultaneously reduce the compensation of its salaried and management employees by $35 million a year. Many nonunion employees will see a cut of 15 percent, but that percentage will not be applied across the board. The percentage cut will be highest for the most highly paid employees.
Terms of the new loan were not disclosed Tuesday. J.P. Morgan, Deutsche Bank and Citigroup served as joint lead arrangers for the Northwest transaction.
U.S. Bank, ABN Amro and Calyon also participated.
Northwest achieved the loan restructuring while three of its competitors -- US Airways, United Airlines and ATA Airlines -- were in bankruptcy. All of the six major network carriers are losing money this year.
It's a major accomplishment when Northwest can redo its line of credit with new and existing financial partners, Denney said. "It's a vote of confidence from the lending community."
Since early 2001, Northwest has reduced its annual costs by about $1.6 billion. Management is now attempting to cut labor costs by $950 million a year, and has attained one-third of that goal with the pilot and salaried worker cutbacks.
Doug Steenland, Northwest CEO and president, emphasized the importance of Northwest's ability to restructure the debt a year before it came due. "The positive response we received from our existing banks and from new investors indicates their recognition of Northwest's strong strategic position and industry-leading performance and their confidence in our ability to continue to achieve cost reductions and return to profitability," Steenland said in a statement.
In a recent interview, Mark McClain, chairman of the pilots union, said pilots tied their contract's implementation to the debt restructuring deal because Northwest needed to clear that hurdle to increase the company's financial stability in the short term.
Denney said the airline faces many large financial challenges, but the new six-year loan provides some breathing room. "There is a good comfort level that Northwest will get additional cost savings and continue to survive," he said.
Liz Fedor, Star Tribune
November 24, 2004 NWA1124
Northwest Airlines said Tuesday that it has restructured a $975 million line of credit -- a deal that improves the airline's financial condition as it girds for another tough year marked by high fuel costs and weak pricing power.
"This removes a liquidity crunch in 2005, but it doesn't return them to profitability," said Joel Denney, an airline analyst for Piper Jaffray & Co. in Minneapolis.
The new financing allows the Eagan-based carrier to move ahead with cutting the wages of its pilots and salaried employees on Dec. 1. Earlier this month, Northwest pilots ratified a two-year contract that reduces the airline's pilot costs by $265 million a year.
But the contract included a major condition -- the 15 percent pay cut for pilots could not be implemented until Northwest successfully restructured the $975 million in debt.
Now it has done so, with a new term loan that includes principal payable over a six-year period. The new loan replaces the revolving line of credit that was scheduled to mature in October 2005.
In addition to cutting pilot pay, Northwest will simultaneously reduce the compensation of its salaried and management employees by $35 million a year. Many nonunion employees will see a cut of 15 percent, but that percentage will not be applied across the board. The percentage cut will be highest for the most highly paid employees.
Terms of the new loan were not disclosed Tuesday. J.P. Morgan, Deutsche Bank and Citigroup served as joint lead arrangers for the Northwest transaction.
U.S. Bank, ABN Amro and Calyon also participated.
Northwest achieved the loan restructuring while three of its competitors -- US Airways, United Airlines and ATA Airlines -- were in bankruptcy. All of the six major network carriers are losing money this year.
It's a major accomplishment when Northwest can redo its line of credit with new and existing financial partners, Denney said. "It's a vote of confidence from the lending community."
Since early 2001, Northwest has reduced its annual costs by about $1.6 billion. Management is now attempting to cut labor costs by $950 million a year, and has attained one-third of that goal with the pilot and salaried worker cutbacks.
Doug Steenland, Northwest CEO and president, emphasized the importance of Northwest's ability to restructure the debt a year before it came due. "The positive response we received from our existing banks and from new investors indicates their recognition of Northwest's strong strategic position and industry-leading performance and their confidence in our ability to continue to achieve cost reductions and return to profitability," Steenland said in a statement.
In a recent interview, Mark McClain, chairman of the pilots union, said pilots tied their contract's implementation to the debt restructuring deal because Northwest needed to clear that hurdle to increase the company's financial stability in the short term.
Denney said the airline faces many large financial challenges, but the new six-year loan provides some breathing room. "There is a good comfort level that Northwest will get additional cost savings and continue to survive," he said.
