Time and money. Northwest Airlines is running out of both, sliding closer and closer to a Chapter 11 bankruptcy. To be sure, there's been...

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ST. PAUL, Minn. — Time and money. Northwest Airlines is running out of both, sliding closer and closer to a Chapter 11 bankruptcy.

To be sure, there’s been speculation about a Northwest bankruptcy for years, as its losses, about $3 billion since the end of 2000, piled up.

But the airline may be compelled to decide about bankruptcy before mid-October, no matter how a dispute with its mechanics plays out this week.

In just two months, sweeping changes in business bankruptcy laws take effect. They’re intended to curb past dillydallying and abuses by businesses that land in bankruptcy — debtors in legal-speak.

The changes also offer more protection to creditors, the people and firms owed money.

“It would be a big mistake for anyone facing bankruptcy in the near term to wait until Oct. 17,” said Jon Schneider, a Boston attorney who was counsel to bondholders in the 1989 Eastern and 1990 Continental airline bankruptcies. “Some of the [new] provisions are very unattractive for a large company like an airline.”

The new laws are likely to cause more companies to be sold or liquidated, many bankruptcy experts believe.

If Northwest does seek bankruptcy protection from its creditors, it is expected to strive to keep its passengers happy with everything from its flight schedule to frequent-flier miles. That’s been standard practice with other big carriers in bankruptcy reorganization.

Almost everything else is up for grabs, from jobs and what workers get paid to which suppliers take the biggest hits.

Some of the businesses owed money — big players like aircraft makers — would have a good shot at getting most or all of their money. They have claims on jets, equipment, coveted routes and other assets.

It’s a different story for the landscaping firm that waters the plants, the caterer or the hundreds, perhaps thousands, of other “unsecured” creditors with nothing to grab back from Northwest. Firms in that group may get only pennies on the dollar, if that.

In bankruptcy, Northwest could look to a judge to grant it hundreds of millions of dollars in wage and other givebacks it has failed to win from its unions at the bargaining table.

A bankruptcy judge voided union contracts at US Airways, clearing the way for steep cuts. United, too, renegotiated its labor contracts as it shed about 25 percent of its jobs.

Northwest could also move to terminate its pension plans, underfunded by $3.8 billion. They’d be dumped on the federal agency that insures them, likely resulting in lower benefits.

Bankruptcy is no fun under the current rules. But with the new bankruptcy laws, companies will be pushed to work their way through bankruptcy faster, and control of the process could even be wrested from management.

Other provisions include restrictions on executive pay, security deposits for utilities and full payment for vendors providing goods shortly before a company files for bankruptcy.

For companies that know bankruptcy is inevitable, filing before mid-October is a no-brainer. But for those on the fence, as Northwest appears to be, it’s a hard call.

Company officials don’t want to file to beat the legal changes then find out they could have avoided bankruptcy and all its uncertainties and expense. But they also don’t want to slide past the deadline and end up filing under new rules that give them far less power and protection.

The new laws will not determine whether a company files for bankruptcy. “But the new legislation will drive the timing,” said George Singer, a corporate and bankruptcy attorney with Lindquist & Vennum, a Minneapolis law firm.

Northwest had $2.14 billion in unrestricted cash on hand as of June 30 and faces nearly $9 billion in long-term debt.

It has said its decision to file will hinge primarily on two things: the airline’s progress in cutting its annual labor costs by $1.1 billion and its prospects for getting Congress to give it more time to make payments to its pension plans.

Soaring fuel prices and possible strikes could also help push it into bankruptcy, it said.

As it now stands, Northwest doesn’t have even a third of the labor savings it seeks. It’s facing a possible Friday strike by mechanics, who complain Northwest is trying to take too much money and too many jobs from them.

Even if Northwest gets what it wants from mechanics, it still needs more givebacks from its flight attendants, ground workers and pilots.

Meanwhile, the pension relief Northwest wants from Congress is not a sure thing. And Northwest is on the hook to pay $800 million into its pension plans in 2006 and $1.7 billion in 2007.

All this is causing Northwest to keep a wary eye on Oct. 17.

“Obviously, the existence of that deadline or that legislative change will be one of the factors that are put in the mix in the decision-making process,” Chief Executive Doug Steenland told industry analysts in July.

In airline and other corporate bankruptcies, judges have tended to indefinitely extend the debtor’s exclusive right to propose a reorganization plan. During this period of “exclusivity,” no other party can directly propose a sale of the company or ownership reorganization.

The ability of a debtor to drag out proceedings gives it great leverage with unsecured creditors who are not being paid or accruing interest.

“Eastern languished for several years in Chapter 11 before a judge realized it was time to boot them out and liquidate them,” said Anthony Sabino, a professor of law at St. John’s University.

Come December, United Airlines will have been in bankruptcy for three years.

The new laws limit a bankrupt company’s exclusive right to file a reorganization plan to 18 months. If it files a plan, then exclusivity is extended automatically to see if it can win the required support from creditors and other parties. But if a plan isn’t proposed within 18 months, unions, bondholders, creditors and other parties can file a plan.

“It does not mean that their plan will be accepted, but it takes a significant element of control away from a debtor,” said Schneider.

Sabino concurs. Debtors will be under great pressure to move cases forward quickly.

“If a company can’t solve its problems within this period of time, the creditors can swoop in and say, ‘If you don’t have a plan to solve your problems, we do,’ ” Sabino said. “That is a very powerful weapon that has long been denied to creditors.”

Northwest busy at Sea-Tac
2005 year-to-date statistics of biggest carriers at airport
Domestic flights Passengers boarded Market share
Alaska Airlines 2,919,361 38.10
Horizon Airlines 805,983 10.52
United Airlines 757,240 9.88
Southwest Airlines 688,780 8.99
Northwest Airlines 504,265 6.58
International flights Passengers boarded Market share
Horizon Airlines 184,245 25.39
Northwest Airlines 100,263 13.82
Alaska Airlines 94,745 13.06
British Airways 56,822 7.83
EVA 49,997 6.89
Source: Port of Seattle