Northwest faces bankruptcy as global air slump continues

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NORTHWEST Airlines could file for bankruptcy as early as today, becoming the largest US carrier yet to succumb to the three-year recession in international air travel.

Northwest, still heavily indebted as the result of a dollars 3.65bn buyout in 1989, has been particularly hard-hit by the slow recovery, and has been struggling to win concessions from employees and creditors.

While its lenders have agreed to extend terms on its debt payments - dollars 1.1bn of which are due next year alone - talks with its trade unions over dollars 886m worth of labour savings broke down last week.

Northwest's directors are 'considering all the financial options open to the company', the airline said.

A filing under Chapter 11 of the US Bankruptcy Code, which Northwest has threatened for several weeks, would allow the airline to keep flying, but would free it to cut its workforce and reduce wages.

Copies of the actual bankruptcy documents, which were shown to union leaders last week, suggest the airline would make 10 per cent of its employees redundant and cut the pay of union members by between 15 and 33 per cent.

But a bankruptcy filing would damage the reputation of the fourth- ranking US airline, particularly in the trans-Pacific market, where it is locked in a battle with Asian carriers and their governments over its low fares. It could also hurt its vaunted global alliance with KLM, the Dutch carrier which owns 20 per cent of the airline.

In the US market, Northwest touched off a 'mini-fare war' last week with a 30 per cent fare discount, raising fears of a repeat of last summer, when the troubled industry was forced to sell its seats at half-price.

After losing more than dollars 10bn in the past three years, the US carriers were optimistic this spring that a recovery was finally under way. But in the past two weeks, a number have been forced to issue profits warnings to investors, suggesting their second-quarter figures will not match expectations.

Analysts say Northwest, although more fragile than its larger rivals, may not be the last carrier to face bankruptcy before the current over- capacity crisis ends. None of the Big Three airlines - American, United and Delta - carries an investment- grade debt rating, and all are warning of drastic action if profits do not return soon to the industry.