Shares of Northwest Airlines Corp. (NWAC) fell sharply Monday following a published report that the nation's fourth-largest airline is close to bankruptcy.

Northwest shares fell 83 cents, or 13 percent, to $5.50 on the Nasdaq Stock Market (search). Northwest's stock has lost nearly half its value this year.

The article in Monday's edition of The Wall Street Journal summed up some of the bad news that has been piling up for the Eagan, Minn., airline, which has said it now has the highest costs of any major U.S. carrier.

Gary Wilson, the airline's largest single shareholder, who is also non-executive chairman, recently has been selling stock, as the airline prepares for a possible labor strike.

According to SEC filings, Wilson has sold 60 percent of his stake in the airline since mid-May.

Spokesman Kurt Ebenhoch said the company had no comment on the report by The Wall Street Journal or the decline in Northwest's stock price.

The airlines' mechanics, represented by the Aircraft Mechanics Fraternal Organization (search), haven't been able to reach a cost-cutting accord with Northwest, despite being under mediation with the federal National Mediation Board (search).

Although they continue to talk, both sides have prepared for a strike.

Northwest is at a big cost disadvantage compared with other airlines like United Airlines (search), a unit of UAL Corp., and US Airways Group Inc. , which have used bankruptcy, or the threat of bankruptcy, to secure major concessions from their labor unions.

Along with others in the airline industry, Northwest faces continuing challenges with low ticket prices and high fuel costs.

Northwest, which reported a net loss of $450 million in the first quarter of 2005, is also suffering from pension underfunding of $3.8 billion. The airline is lobbying Congress to get more time for airlines to fund their pensions, and change traditional pension plans to more affordable 401(k) employee retirement plans.

Given the bankruptcy court's unique ability to cut labor costs, analysts have said that Northwest and other cash-strapped carriers, including Delta Air Lines Inc. (DAL), and Continental Airlines Inc. (CAL), may use Chapter 11 as a last resort.

But Northwest Chief Executive Doug Steenland said that bankruptcy "clearly is not the preferred choice and is not our first option," according to the Journal.

Also Monday, Northwest backed down on a $50 each-way fare increase aimed at business travelers after two other carriers failed to match it.

Northwest announced the fare increase on Friday, and United, Continental Airlines Inc. and US Airways all matched it. But American Airlines and Delta Air Lines never did, and other airlines began backing down over the weekend. By Sunday night Northwest dropped it.

Northwest also rescinded a $5 to $10 fare increase on tickets that compete with discount carriers, and a two-night stay requirement for some fares.

The fare increases were dropped "because our fares were no longer competitive," Ebenhoch said on Monday.

Northwest's increase was the first effort to push above the $499 cap for one-way tickets Delta instituted in January. Other carriers matched Delta's cap, at least in markets where they compete. Northwest has complained that the cap is arbitrary and hurts the industry.