Feeders Facing Dish of Northwest's Pain

Northwest Airlines' (NWACQ Quote) stock isn't the only airline equity getting hammered by the carrier's descent into bankruptcy.

Two companies operating regional feeder flights under contracts with Northwest -- Pinnacle Airlines (PNCL Quote) and Mesaba Airlines' parent MAIR Holdings (MAIR Quote) -- have seen their stocks fall about 17% and 25%, respectively, over the past week and a half. Investors are worried about payments Northwest owes the two small airlines, as well as the fate of their partnerships with the nation's No. 4 carrier.

The situations highlight the risks regional carriers face as their legacy partners undergo wrenching restructurings necessitated by record-high fuel costs and competition from nimbler, low-cost discounters.

Last week, Northwest skipped an $18.7 million payment to Mesaba and a $22 million payment to Pinnacle. Northwest's filing last Wednesday for Chapter 11 bankruptcy protection gives it relief from creditors, creating uncertainty about when and if it will make those payments. Both regional carriers also have expressed concern about other big payments due toward the end of the month.

Because Pinnacle's only customer is Northwest, it warned in a regulatory filing Friday that the interruption in its cash flow will be material. Helane Becker, airline analyst at the Benchmark Co., a New York-based brokerage firm, expects Pinnacle shares to remain under pressure because of the company's now-murky outlook. Her firm does no investment banking.

Meanwhile, Northwest is seeking to use the bankruptcy process to reject leases on 35 British Aerospace Avro regional jets it subleases to Mesaba. Although analysts say the move is hardly surprising -- the planes are starting to get long in the tooth and are less efficient than newer models -- it does raise uncertainty for Mesaba, and Becker advises investors to sell the stock.

What's more, analysts expect Northwest to imitate other bankrupt legacy carriers US Airways (UAIRQ.OB Quote) and United Airlines' parent UAL (UALAQ.OB Quote), which used Chapter 11 to extract contract concessions from regional partners.