Northwest's Chapter 11 Risk Rising, Analysts Say

CHICAGO – Northwest Airlines (NWAC), severely battered by soaring fuel costs, is facing a Chapter 11 bankruptcy protection filing this year if oil prices don't recede soon, analysts said on Friday.

The outlook is darkening for the No. 4 U.S. carrier, which already is coping with a mechanics strike and a growing likelihood it will need additional concessions from its workers -- beyond the $1.1 billion it already has requested.

The most urgent problem facing Northwest right now is skyrocketing energy prices. The carrier on Thursday forecast a third-quarter net loss of about $4 million per day as fuel prices rose following Hurricane Katrina's (search) devastation of the U.S.' Gulf Coast.

"I think this certainly has to make management think a lot harder about bankruptcy," said Morningstar equity analyst Chris Lozier. "I think it's definitely better than a 50-50 chance that they'll go bankrupt before the end of this year."

Shares of Northwest Airlines fell more than 11 percent to a multiyear low on Friday after the troubled airline said its third-quarter loss would increase in the wake of the storm.

High fuel costs have walloped the entire airline industry, but some analysts have speculated that Northwest and Delta Air Lines (DAL) could be tipped into bankruptcy if prices remain high.

"If fuel prices remain at current levels, the chances of a bankruptcy filing this year increase at probably a one in three chance," airline analyst Ray Neidl wrote in a research note.

U.S. crude oil futures declined on Friday to $67.65, but remained near a record high of $70.85 reached on Tuesday after Katrina disrupted offshore oil production from the Gulf of Mexico.

"Fundamentals continue to deteriorate regardless of the positive implementations Northwest has made to steer the course to avoid bankruptcy," said Paul Foster, strategist at financial-information Web site http://theflyonthewall.com .

"Another two weeks of oil like this and I think they'll have to file (for bankruptcy)," Foster said.

Northwest, meanwhile, is struggling to wring savings worth $1.1 billion annually from its labor force. On August 20, the union representing Northwest's mechanics called a strike after the airline and workers failed to reach an agreement on a cost savings plan that would save the carrier $176 million a year.

Since then, Northwest has continued service, using replacement mechanics and outside vendors. Northwest has said its operations have gone smoothly.

On Thursday, the Air Line Pilots Association (search) said it would return to the bargaining table to try to negotiate a new concessions package with the airline. The pilots had already agreed to $300 million in concessions.

Northwest's stock was down 38 cents, or 9.1 percent, at $3.59 in Nasdaq trade.