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Northwest Tries New Direction

The airline prepares to come out of bankruptcy hoping its stock will fare better than Delta's did.
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The final step in the post-Sept. 11 restructuring of the U.S. airline industry will occur at the end of this month, when

Northwest

(NWACQ)

emerges from bankruptcy and starts trading on the

New York Stock Exchange

.

Northwest will become the fourth and last of the six legacy airlines to complete a bankruptcy reorganization that includes a new stock issue. In bankruptcy, it shed $2.2 billion in yearly operating costs, including $1.4 billion in labor costs, with $200 million in additional reductions expected by 2008.

The carrier also reduced debt and lease costs by $4.2 billion annually and cut capacity by about 10%.

Northwest shares began trading May 21 on what's known as a "when issued" basis, meaning the stock has been authorized but not yet issued. Shares have traded around $25 before being widely disseminated to the public.

The stock has an exchange specialist, meets listing standards and has been certified by the

Securities and Exchange Commission

. However, at the moment, trading is geared toward institutions or large brokerage firms due to complicated settlement provisions.

Shares will trade under the "NWA" symbol, just as they did when Northwest was listed on the

NYSE

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from 1941 to 1989, the year the carrier was taken private. It went public again in 1994 and was traded on

Nasdaq

as "NWAC" until the bankruptcy.

Northwest intends to issue about 278 million shares, with most of them going to creditors, who are expected to recover about 68% to 85% of the value of their claims. The current stock will be canceled.

Like Northwest,

Delta

(DAL) - Get Delta Air Lines, Inc. Report

filed for bankruptcy protection on Sept. 14, 2005. Delta emerged on April 30. Its shares, which began trading May 3 at $21.75, have fallen about 12%.

CreditSights analyst Roger King noted that shares in both Delta and

United

(UAUA)

declined after post-bankruptcy trading began, and he said Northwest's plan of disclosure valuing its stock at $27 was high.

"The industry's weak post-confirmation equity performance continues with NWA," King wrote in a recent report. "Most of this is due to perennially optimistic pro forma projections inserted in the various plans of reorganization."

Meanwhile, Standard & Poor's analyst Philip Baggaley said in a recent report that Northwest "will exit bankruptcy with an improved operating cost structure and reduced debt and lease obligations" and that "it is currently among the most profitable U.S. carriers." Additionally, he said, its projections rely mostly on cost cuts already in place, rather than on revenue gains.

However, Baggaley said, Northwest reduced its fully adjusted debt, including pensions and other retiree liabilities, by less than 25%. The reduction was higher at Delta, he said.