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I'll concede my example was very simple. I still think the point is valid. Just because Liabilities exceed assets, it would not mandate a company to declare bankruptcy.
I did not say that this fact by itself would necessarily "mandate" a filing.
mandate or not, liabilities > assets are just a minor part of the equation. Companies declare not as much because of their current state, but their projected future state. (immoral-illegal Enron exec non-withstanding) Sure, things suck when they declare (11), but they declare because the future outlook is really, really bleak. You declare (7) when you run out of cash (IAir) - among other reasons.
That's not what makes a business plan unviable. It's unviable due to projected future state.
Don, finman must have a selective memory. He also is not telling the truth. After a quick search on the internet, I came up with NWA's statement on their 2001 Q3 financial results...
http://ir.nwa.com/phoenix.zhtml?c=111021&a...&highlight=
Northwest Airlines Reports $19 Million Third Quarter Net Income Including the Government Stabilization Grant
ST PAUL, Minn., Oct. 25 /PRNewswire/ -- Northwest Airlines Corporation (Nasdaq: NWAC), the parent of Northwest Airlines, today reported a third quarter profit of $19 million or 20 cents per diluted common share. This compares to third quarter 2000 reported net income of $207 million or $2.23 per diluted common share. These results include the recognition of $249 million of a pre-tax grant from the U.S. Government under the Air Transportation Safety and System Stabilization Act (``Stabilization Act'') and $61 million in non-recurring pre-tax charges for aircraft write-downs and severance costs related to the terrorist acts of September 11. Excluding the federal grant and the non-recurring charges, Northwest reported a net loss of $100 million or $1.18 loss per share, which compares favorably to the First Call consensus estimates of $1.54 loss per share.
I also came up with their 2001 Q4 results...
http://ir.nwa.com/phoenix.zhtml?c=111021&a...&highlight=
Northwest Airlines Reports Fourth Quarter and Full Year Results
ST. PAUL, Minn., Jan. 17 /PRNewswire-FirstCall/ -- Northwest Airlines Corporation (Nasdaq: NWAC), the parent of Northwest Airlines, today reported a fourth quarter net loss of $216 million or $2.55 per common share. This compares to fourth quarter 2000 reported net loss of $69 million or 84 cents per common share. The fourth quarter 2001 results include the recognition of $212 million of a pre-tax grant as compensation from the U.S. Government under the Air Transportation Safety and System Stabilization Act ("Stabilization Act") and $149 million in non-recurring pre-tax charges principally related to aircraft write-downs and/or retirements.
So, NW received at least $461 million in compensation from the government. Funny, but I don't remember them ever giving the money back...
Care to clarify your previous comment about the government bailout now finman? :unsure:
My answer clearly qualifies what I thought the coversation was about. I took for granted that you guys would not be referring to the direct compensation for the lost revenue as a result of the attacks. I presumed the loan program was at issue, since that is the only thing that would be relevant still today (i.e., does NWA have to pay it back in BK). It looks like you guys are way too desperate to "win" a conversation.Oh I can see it now......
This was finnys remark on post 9-11 money for NWA.
Just watch the requalifying begin. My guess is he'll try to say he knew about the grantbut was only talking about the loan.
One things for sure, this is going to be fun to watch.
There were two pieces to the act. The direct compensation to compensate for the ground stop orders and fallout from the terrorist attack , and the loan guarantees that followed. NWA, naturally, got a prorated piece of the direct compensation for the attacks (which were not required to be paid back). As stated, NWA did not participate in the loan program. Below is an excerpt that explains the act more clearly.
Don's Original Statement - "When nwa went into BK it had nearly $2B (as in Billion) in the bank. This money was courtesy of the U.S. government as part of the bailout of airlines over 9-11."
As stated, the compensation received was to offset direct losses inflicted as a result of the attack. The net tax benefit of that compensation (about $300M) is a drop in the bucket of the $2B of borrowed cash that NWA had at the time of the BK filing 3 years later.
BACKGROUND
After the terrorist attacks of September 11, 2001, there was serious concern that, without significant U.S. government financial support, many U.S. airlines would go bankrupt. In response to this concern, Congress enacted the “Air Transportation Safety and System Stabilization Act†(P.L. 107-42), which was signed into law on September 22, 2001. The Stabilization Act provided a total of $5 billion in compensation to air carriers for direct losses incurred as a result of Federal ground stop orders and for incremental losses incurred between September 11, 2001 and December 31, 2001, as a direct result of the terrorist attacks. In addition, the Stabilization Act provided for up to $10 billion in airline loan guarantees.
STATUS OF IMPLEMENTATION OF STABILIZATION ACT
Direct Compensation
As of September 18, 2002, $4.55 billion of the $5 billion in direct compensation provided by the Stabilization Act had been paid to a total of 396 passenger and cargo air carriers. The bulk of these funds were distributed in 2001, including $2.3 billion that was distributed very quickly -- by October 1, 2001.
The Department of Transportation (DOT) initially used procedures set out in Program Guidance Letters to make a first round of payments amounting to nearly 50 percent of the $5 billion total. On October 29, 2001, DOT issued a final rule providing procedures for air carriers to use in applying for additional compensation. Under the October 29th rule, DOT issued a second round of payments that was intended to distribute about 85 percent of $5 billion total. Three subsequent rules were issued, in January, April, and August of 2002, to address comments received on the prior regulations. Applications for a third round of payments were due to DOT no later than July 29, 2002, and DOT is now in the process of issuing the third, and final, round of payments.
In general, payments that have not yet been made at this point fall into two categories: (1) contested claims, and (2) the $35 million set-aside for small carriers, such as air taxis, air tour operators, and air medical operators. Regarding the contested claims, DOT is working to settle contested claims as quickly as possible, but some will likely result in litigation. Regarding the $35 million set-aside, this category of funds cannot be distributed until all claims in that category are settled. About half of these claims are settled to date, and DOT estimates that it will be able to settle the other half and distribute the $35 million set-aside in about one month.
Since the $5 billion in compensation is subject to taxation, the Air Transport Association (ATA) estimates that the air carriers will receive a net benefit of about $4 billion after taxes, assuming a marginal tax rate of 20 percent.1
Loan Guarantees
Sixteen air carriers applied for a Federal loan guarantee under the program established by the Stabilization Act. To date, only one -- America West -- has been finally approved, and one other -- USAirways -- has been conditionally approved. Four applications have been denied (Vanguard, Frontier Flying Service, Spirit Airlines, and National Airlines). Ten applications are pending -- the largest of which is United Airlines’ request for a $2.0 billion loan, of which $1.8 billion would be guaranteed by the Federal government.
The America West loan is a $429 million unsecured loan, of which $380 million is guaranteed by the Federal government. This loan is not secured by tangible assets. However, as part of the loan agreement, the Air Transportation Stabilization Board (ATSB) received stock purchase warrants that will enable it to buy a certain amount of America West stock at a certain “strike price†in the future. No voting rights are attached to these warrants.
For USAirways, the ATSB has conditionally approved a $1 billion loan, of which $900 million would be guaranteed by the Federal government. In contrast to the America West loan, the USAirways loan will be secured by a variety of assets. To receive final approval of this loan guarantee, USAirways must conclude legally binding agreements, satisfactory to the ATSB, regarding the cost-savings and the initiatives described in USAirways’ business plan. In addition, the ATSB must receive additional stock purchase warrants in an amount and at a “strike price†acceptable to the Board. Finally, certain issues as to collateral (including slots and gates) must be resolved to the ATSB’s satisfaction. The loan guarantee would be available to USAirways if and when it emerges from bankruptcy.
My answer clearly qualifies what I thought the coversation was about. I took for granted that you guys would not be referring to the direct compensation for the lost revenue as a result of the attacks. I presumed the loan program was at issue, since that is the only thing that would be relevant still today (i.e., does NWA have to pay it back in BK). It looks like you guys are way too desperate to "win" a conversation.
:down: wrong again finny, had to do with a little cookin of the old books. But what the #### do u know!
Northwest lives up to tough image: experts
Thursday August 24, 12:28 pm ET
By Kyle Peterson
CHICAGO (Reuters) - Northwest Airlines (Other OTC:NWACQ.PK - News), facing a potentially devastating flight attendants' strike on Friday, is living up to its reputation as an unflinching, no-nonsense labor negotiator, experts said.
With a threatened job action looming, the airline is standing tough and not retreating from a decision last month to void the workers' contract to reach a cost savings goal.
Some say Northwest's tack against the Association of Flight Attendants (AFA) has become increasingly common as airlines balance their desire for good employee relations against their need to pinch every penny.
"The last several years have pushed (industry) labor relations into a new frontier," said Joe Schwieterman, transportation expert at DePaul University. "Both sides are playing hardball tactics."
Top U.S. carriers have been forced to exact worker concessions to offset the pressures of low-fare competition and soaring fuel costs.
Northwest, which entered bankruptcy in September, last month terminated its flight attendants' contract and imposed terms that save the carrier $195 million a year.
Although the airline had court permission, the AFA said the action triggered its right to strike. The union has demanded that Northwest negotiate a contract that members will ratify.
Barring government interference, the union could strike as early as 9:01 p.m. CT on Friday. The airline has said a strike could erode bookings and ultimately ruin the carrier.
Bob Brodin, a retired senior vice president in charge of labor relations at Northwest, said the carrier is no tougher in negotiations than it has to be in a troubled industry.
"Northwest has over the years had some difficult negotiations with its unions," Brodin said. "I think it's true of most airlines."
The industry is rife with examples of stormy relations. UAL Corp. (NASDAQ:UAUA - News), parent of United Airlines, demanded two pay cuts during a three-year stint in bankruptcy that ended last year. The carrier achieved the savings through negotiations but came to the brink of a flight attendants' strike.
Earlier this year, bankrupt Delta Air Lines (Other OTC
STRAINED LABOR RELATIONS
Northwest is no stranger to union showdowns. It has faced four strikes since industry deregulation in 1978, according to data from the National Mediation Board. Only Continental Airlines (NYSE:CAL - News), with five strikes in 28 years, has seen more.
Experts are divided over whether Northwest's tough reputation is an effective bargaining tool or unnecessarily provokes employee wrath. The carrier has recently negotiated deals with its other unions and has achieved a labor savings goal of $1.4 billion.
Bankrupt airlines frequently ask for court permission to void labor contracts, but they usually reach deals with unions before the judge rules on the request.
"I think the way they handle negotiations has been very abrupt and confrontational," said Stuart Klaskin at KKC Aviation Consulting. "Northwest certainly has a reputation ... for having attracted some of the industry's more aggressive and tough-minded managers."
Northwest reinforced that image last year during a confrontation with the Aircraft Mechanics Fraternal Association. After failing to reach a labor deal, AMFA sent its members on strike. The airline simply replaced the workers.
Northwest has said it is ready for a flight attendants' strike but has declined to outline its contingency plan.
Airline expert Darryl Jenkins praised Northwest's straightforward approach to union negotiations.
"Certainly it helps them because everybody at the table knows that the other party carries out what it says it's going to," Jenkins said.
Former Northwest executive Brodin said critics sometimes underestimate Northwest's compassion for its employees. He noted the carrier's successful efforts this year to get Congress to reform pensions laws.
The pension measures, signed into law this month, gave airlines more time than other industries to meet their pension contribution obligations, thereby preserving employee retirement plans that otherwise might have been scrapped.
"From a purely economic standpoint, that probably wasn't the best choice," Brodin said.
AFA General Counsel David Borer agreed that Northwest is not unique in its contentious labor relations. In fact, he reported a mostly positive experience in negotiations with the airline.
"Our initial experience has been a professional attitude at the bargaining table. The problem is they're just asking for too much," Borer said.
should this topic not be alpa cowers before their masters and licks the boots of andy and his #### doug?
