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Rating Action:

MOODY'S CONFIRMS DEBT RATINGS OF NORTHWEST AIRLINES CORPORATION AND ITS SUBSIDIARY NORTHWEST AIRLINES INC. (SENIOR AT Ba2)

14 Sep 1998
MOODY'S CONFIRMS DEBT RATINGS OF NORTHWEST AIRLINES CORPORATION AND ITS SUBSIDIARY NORTHWEST AIRLINES INC. (SENIOR AT Ba2) New York, 09-14-98 -- Moody's Investors Service confirmed the debt ratings of Northwest Airlines Corporation and its subsidiaries following ratification this past weekend of a new four year contract by the pilots. This ended a fifteen day strike that began on August 29th. The airline estimates that it will take about ten days to resume full operations. Moody's points out, however, that the strike has been very costly to the airline and has significantly weakened its credit quality and put additional pressure on its balance sheet, which is already highly levered. Northwest estimates the strike will cost it about $26 million per day, including some expenses to ramp up, and as a result the company expects to report losses in the third and fourth quarters, and for 1998 as a whole. Moreover, the airline faces further pressures as it must still negotiate with five other unions, the largest of which are the flight attendants and machinists. Consequently, the rating outlook for Northwest is negative.

Ratings affected are:
Northwest Airlines, Inc.: Guaranteed senior unsecured notes rated Ba2; Senior secured (pass-through) shelf rating (P)Baa3; Senior unsecured shelf rating (P)Ba2; Subordinated shelf rating (P)B1; Pass-through certificates Series 1996A - Class A notes rated A2; Pass-through certificates Series 1996A - Class B notes rated Baa1; Pass-through certificates Series 1996A - Class C notes rated Baa3; Pass-through certificates Series 1996A - Class D notes rated Ba1; Pass-through certificates Series 1997-1 - Class A notes rated A3; Pass-through certificates Series 1997-1 - Class B notes rated Baa2; Pass-through certificates Series 1997-1 - Class C notes rated Baa3; Master Trust Series 1994-1 rated Ba1.
Northwest Airlines Corporation: Senior unsecured shelf rating (P)B1; Subordinated shelf rating (P)B2; Preferred stock shelf rating (P)"b2".
NWA Trust No. 1 (Northwest Airlines credit): Class A notes rated Baa1; Class B notes rated Baa3.
NWA Trust No. 2 (Northwest Airlines credit): Class A notes rated A2; Class B notes rated A3; Class C notes rated Baa2; Class D notes rated Ba1.

The four-year pilots agreement provides for a 12% raise over the life of the contract, retroactive payment of $57 million to cover the two years since the contract had expired and during which a new agreement had been sought, options for 2.5 million Northwest shares, a new profit-sharing plan, gradual elimination of the two-tier pay scale, and a limitation on the addition of regional jets based on the growth of the mainline fleet. Even upon resolution of the strike with the pilots, Northwest faces a number of other issues including ongoing negotiations with several other unions the largest of which are the flight attendants and the machinists, which recently asked to be released from mediation. In addition, Northwest continues to face weakness in the Asian markets; the need to improve its yields, which had detioriated as premium traffic booked away in a precautionary measure prior to the strike; and a need to improve its customer service, which has declined to the lowest level of any of the U.S. major airlines.

Although Moody's is confirming the ratings at this time, the pilot's strike has weakened the company's position in its rating category and, as a result, the ratings will continue to be closely monitored. Any labor disruptions during negotiations with its remaining unions or Northwest's failure to address its other challenges in a timely manner could adversely impact the rating.

Northwest Airlines, Inc. and Northwest Airlines Corp. are headquartered in Minneapolis, MN.

No Related Data.
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