As the clock ticked toward a potential mechanics' strike at
, yet another Wall Street analyst issued a bullish call on its stock, voicing confidence about the airline's ability to fly through a walkout.
Thursday's upgrade to outperform from Bear Stearns' David Strine helped boost the stock nearly 20% on heavy volume. It comes just two days after Strine's counterpart at Morgan Stanley assigned it an overweight rating. Both firms do and seek to do business with companies covered in their research reports.
The pair joins the ranks of investment-house bulls arguing Northwest's contingency plans should allow it to operate smoothly even if mechanics represented by the Aircraft Mechanics Fraternal Association walk off the job at 12:01 a.m. EDT Saturday. That's when a 30-day cooling-off period mandated by federal labor law expires.
If Northwest's replacement workers prove up to the task, the thinking goes, then the airline will have lowered its maintenance costs and freed itself to pursue cuts from other work groups.
Still, it's a risky bet, and even the Wall Street bulls have acknowledged as much. If the 1,500 or so replacement workers and Northwest managers set to perform line maintenance at Northwest's Detroit and Minneapolis hubs fail to keep up with the airline's busy schedule, they could delay or strand passengers during the busy summer travel season, creating a public-relations disaster that could hurt future bookings.
Another key risk is that the mechanics' dispute becomes a flash point for unionized labor. Northwest's flight attendants' union is voting on whether to honor the mechanics' picket line, while
pilots say they'll refuse to fly any cargo that Northwest contracts the parcel shipper to carry during a strike.
Despite the risks, investors chose to focus on the reward side of the risk/reward equation Thursday, bidding up shares as high as $5.97. The stock was up 69 cents, or 13.8%, at $5.69 by midafternoon. Volume of nearly 12 million shares was almost triple the 4.1 million-share average.
The stock has climbed more than $1.50 this week and is now almost $2 above a 52-week low of $3.77 hit in early July.
Meanwhile, last-minute negotiations between the mechanics and Northwest continued, although a deal still seemed out of reach. The airline acknowledges receiving an offer from the union on Wednesday evening, but says it's not enough. "It appears to fall far short of the $176 million in annual cost savings the company needs from its AMFA-represented employees," said a Northwest statement. "Our preliminary estimate of the value ... is $100 million."
On its Web site, the union said Wednesday that both sides had resolved some issues related to contract language but didn't offer details on possible concessions.
In the past, AMFA has accused the airline of intransigence in sticking to a contract offer that would lay off about 53% of its workers and impose pay cuts of about 25% on the survivors. The National Mediation Board last month declared mediated talks at an impasse, setting in motion the current cooling-off period.
The airline is seeking the mechanics' concessions as part of a broader $1.1 billion reduction in annual labor costs it contends are necessary to avoid bankruptcy. Late last year, Northwest got $250 million of that amount from pilots and $35 million from management and salaried employees.
If the mechanics strike, and Northwest's contingency plan holds up, the airline could get even more expense relief than the $176 million it's seeking from the union. During the company's second-quarter conference call, CEO Doug Steenland said Northwest would likely seek even more savings from new replacement workers.
But even if Northwest successfully flies through a strike or gets concessions from the mechanics, it still must negotiate cuts from flight attendants and ground workers and go back to the bargaining table with pilots.
As it seeks to avert bankruptcy, the airline is also relying on another development that is far from certain -- pension reform from Congress that would give carriers with traditional pension plans more time to meet their obligations.
That combination of uncertainties prompted one analyst to go against the bullish grain. Jim Corridore, who follows airline stocks at Standard & Poor's, put a strong sell on Northwest at the beginning of the month, and he sticks by his call.
"They still have to renegotiate with flight attendants and the pilots," he says. "When they came up with these plans, oil prices were $10-a-barrel cheaper. They still have a lot of trouble ahead of them. The risk of bankruptcy remains high."
Standard & Poor's doesn't do investment banking with the companies its analysts cover, but its affiliates may provide other services to them.