Northwest will use cash if it buys back stock
MINNEAPOLIS -- Northwest Airlines said Tuesday that it will use cash rather than its common stock to repurchase $226 million in preferred shares from its employees later this year -- if it decides to buy back the shares this year.
Northwest's board will decide on Aug. 1 whether to repurchase the shares held by ground workers and flight attendants since 1993, when they were given stock equal to a dollar-for-dollar return on concessions they made to keep the carrier out of bankruptcy.
Teamsters Local 2000, along with the International Brotherhood of Teamsters, immediately filed a lawsuit against Northwest to force the company to abide by the 1993 agreement.
Mollie Reiley, trustee of Local 2000, said the lawsuit was filed in a New York state court seeking an order requiring Northwest to honor the employee stock agreement and repurchase the shares.
Each participating flight attendant holds preferred shares worth between $7,000 and $18,000 covering the compensation they gave up between August 1993 and July 1996.
While Northwest officials wouldn't comment on the lawsuit because they hadn't reviewed the complaint, spokesman Bill Mellon said Northwest considers the repurchase an "important obligation."
However, the Eagan-based airline has lost $1.6 billion since early 2001 due to the slow economy, the Sept. 11 terrorist attacks, a drop-off in business travel and increased competition from low-fare carriers. Northwest has said it doesn't expect to return to the black anytime soon.
Under terms of the 1993 deal, Northwest was required to decide by Monday how it would repurchase the preferred stock. Northwest also has acknowledged that employees have the right to sell the stock to the company for $46.96 a share.
But Northwest said the concessions deal required the airline to make a separate decision as to whether the company will repurchase the Series C Preferred Stock.
Mellon said the company consistently has told employees that the repurchase decision will be made by the board of directors around Aug. 1.
The 1993 agreement sets up three remedies if Northwest is not in a position to buy back the stock on Aug. 1, Mellon said.
The first remedy, he said, is the stock would begin to earn a quarterly dividend at 12 percent a year, based on the $46.96 price. He said that dividend would remain in effect until Northwest repurchases the shares.
The second remedy, if the company cannot buy back the stock, would be that the three labor positions on the board of directors would double, with the International Association of Machinists, the Teamsters and the pilots' union each getting an additional seat.
The third remedy would be for the company to repurchase the stock in chunks as it has "available cash," Mellon said.