Northwest Airlines bankruptcy
From Invertopedia, the encyclopedia of how things fail
Northwest Airlines, the world's fourth largest airline, filed for Chapter 11 on September 14, 2005[1][2]. It had been bought in a leveraged buyout in 1989[1]. In 2003 it said it needed $950 million in concessions to avert bankruptcy; by 2005 the demand was $1.1 billion, and its mechanics went on strike on August 20 rather than accept cuts and layoffs[1]. The airline emerged in spring 2007 and was in merger talks with Delta in 2008[3].
What happened
| 1989 | An investor group buys Northwest in a leveraged buyout.[1] |
|---|---|
| 2003 | Northwest says it needs $950 million in concessions from workers to avert bankruptcy.[1] |
| Aug 20, 2005 | Mechanics strike rather than accept wage cuts and layoffs.[1] |
| Sep 14, 2005 | Northwest files Chapter 11, citing a cost structure it called uncompetitive and fuel costs.[1][2] |
| Spring 2007 | Northwest and Delta both emerge from bankruptcy.[3] |
The kill shot
Northwest's costs were above its rivals', it spent years asking workers to close the gap, and a jump in fuel prices ran out its time.
Northwest said that, in addition to an uncompetitive cost structure, its efforts had been overtaken by "skyrocketing fuel costs"[2].
The inversion
Fix the cost gap while you still have cash. Concessions asked for under a bankruptcy threat, year after year, do not hold.
References
- ^ “Significant events in Northwest's history”. Associated Press via NBC News, September 14, 2005. 1989 buyout, 1993 and 2003 concession demands, $1.1 billion, strike, filing.
- ^ “Northwest Airlines Files For Chapter 11”. Northwest Airlines statement via Breaking Travel News, September 15, 2005. Company statement: fourth largest, fuel bill, Steenland on costs.
- ^ “Airlines: A Tale of Mergers and Bankruptcy”. CNBC, February 21, 2008. Emergence in spring 2007 and Delta merger talks.