September 15, 2005
Northwest's bankruptcy filing left a long list of businesses to which the company owes money. Many of them are banks, insurance companies, and other major investors around the country. Many others are companies who did business with Northwest, some in Minnesota.
St. Paul, Minn. — One of the first clear signals that bankruptcy was imminent came from Northwest's regional partner, Mesaba Airlines. Eagan-based Mesaba handles smaller flights, mostly in the Midwest, under the label Northwest Airlink. By Monday night, Northwest had missed the deadline to pay more than $18 million it owed Mesaba for two weeks of flying in August.
By declaring bankruptcy just two days later, Northwest may not have to pay the money to Mesaba for months -- or even years -- and may not ever have to pay the full amount. The same goes for billions of dollars and hundreds of others to whom the airline owed money when it filed for Chapter 11.
According to court documents, Northwest owes Mesaba a total of $23 million right now. But Mesaba spokeswoman Elizabeth Costello says the company is not affected.
"We can continue to operate normally," she said. "We have been planning for different scenarios recently and are implementing those contingency plans now. And the resolution of that payment that Northwest missed earlier in the week is now part of their overall restructuring effort. We'll pursue our rights and prerogatives in that case.:
Costello declined to offer any more detail on the contingency plans Mesaba has in place. But she says Mesaba has no reason to believe Northwest will miss its next payment, due in a week and a half.
The company probably shouldn't worry, according to Howard Wu. Wu was associate general counsel at US Airways during both of its recent bankruptcies, and recently left to join the Twin Cities aviation law firm of Fafinski Mark and Johnson.
"Mesaba provides ongoing operations for Northwest, and any party that performs services or provides goods to a company in bankruptcy is entitled to be paid. If they're not paid, they can stop providing those goods and services," he said.
Wu says the $23 million bill, left unpaid just before bankruptcy, is another story. Mesaba and others left hanging must negotiate through the bankruptcy process to get at least a share of what they're owed. Wu says this often happens late in the bankruptcy process. But some companies are likely to have more leverage than others.
"I would say the people on that list that are likely to have more success are what I call the 'critical vendors' to Northwest, one of whom would be credit card processing companies, because they are critical to cash flow," according to Wu.
Mesaba might not have much leverage to get back that $23 million; its contract forbids it from flying for anyone else.
Other Minnesota companies on the list might have more luck. Minneapolis-based Medica provides health insurance formany of Northwest's 15,000 Minnesota employees. While court filings say Northwest owes Medica about $1.5 million, spokesman Larry Bussey expects the company will be paid back shortly.
"Northwest has filed motions asking the court to authorize payment for anything that's owed to us. We're pleased with that. We plan to continue doing business as usual with Northwest and will continue to pay claims on their behalf," Bussey said.
The top Northwest creditors in Minnesota include two more insurance companies, UnitedHealthcare and Delta Dental. Also notable is the Dallas-based company Affiliated Computer Systems. ACS maintains a substantial workforce in Minnesota, partly to run Northwest's online reservations system. A spokeswoman says the $2 million owed by Northwest poses no material risk and she expects business as usual.
These companies come from Northwest's list of "unsecured creditors." They are distinct from "secured creditors" like the State of Minnesota and Minneapolis St. Paul International Airport. Northwest is reportedly current on its payments to them. Secured creditors almost always rank higher in the pecking order of who gets paid back during bankruptcy.
Lower on the ladder are Northwest shareholders. As the bankruptcy process shakes out, Northwest employees holding preferred stock will come first. Then at the bottom -- and sometimes left out entirely during bankruptcies -- are shareholders in the general public.