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Despite revenue rise, Northwest Air loss widens - UPDATE 3
AFX
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SAN FRANCISCO (AFX) -- Quarterly losses at Northwest Airlines widened Tuesday and the company said the red ink is at 'unsustainable levels' as the carrier battles record jet-fuel prices and underfunded pensions.
Second-quarter losses totaled $225 million, or $2.59 a share, against $182 million, or $2.11 a share, in the year-earlier period.
Excluding special items, the losses were $279 million, or $3.21 a share, versus $78 million, or 90 cents.
'Losses of this magnitude are not sustainable. During the first six months of 2005, Northwest has been averaging losses of $4 million per day,' said Chief Financial Officer Neal Cohen in a statement. The second-quarter's net losses were narrower than the first-quarter's $458 million, or $5.28 a share, in red ink.
During the quarter, Northwest recorded a $102 million gain for sales of shares of Prudential Financial Inc. and a $48 million aircraft-related write-down.
Revenue reached $3.195 billion from $2.871 billion.
According to Thomson First Call, Northwest had been expected to lose $3.29 a share, with a loss range of $3 to $3.80 among the nine analysts surveyed. Revenue was expected at $3.08 billion, according to three analysts surveyed by Thomson First Call.
Looking past the rush of the summer travel season, the company is going to pare back its fourth-quarter capacity by 3% to 4%.
'A slight positive against an otherwise sobering release, though revenues tend to decline more quickly than do costs when planes suddenly idle,' wrote J.P. Morgan analyst Jamie Baker in a Tuesday research note.
Second-quarter fuel costs rose 58% to $790 million; jet-fuel prices have set records this year. The company paid an average per-gallon price of $1.642 during the quarter.
Labor costs were 0.5% lower at $959 million, but that's still too high, according to the company's president and chief executive.
'Many of our major competitors have significantly lowered their labor costs, both in and outside of bankruptcy, leaving Northwest with the highest labor costs in the industry,' CEO Doug Steenland said.
The carrier said it has $2.64 billion in cash, equivalents and short-term investments, up slightly from $2.615 billion last quarter.
In an austerity move, the Eagan, Minn., carrier also said it is freezing its defined-benefit retirement plans for salaried workers and replacing it with a defined-contribution plan.
The company is locked in a contract battle with workers represented by the Aircraft Mechanics Fraternal Association as it aims to cut more than $1 billion a year in costs to avoid filing for bankruptcy protection. The mechanics union has threatened to strike.
Mediators released both sides from talks and the parties are in a 30-day cooling-off period.
Though Northwest stock is down 59% this year, shares rose 10% to $4.88 on Tuesday.
'We believe some of the strength in Northwest shares today is driven by positive pension reform movement in the Senate,' wrote Prudential Equity Group analyst Bob McAdoo in a Tuesday research note.
Northwest is also looking to Washington to change pension-funding legislation to help ease the burden of its underfunded defined-benefit retirement plans.
The Senate Finance Committee on Tuesday approved legislation that would change how U.S. companies fund their pension plans. The legislation , called the National Employee Savings and Trust Equity Guarantee Act of 2005, would carve out special funding rules for commercial passenger airlines with underfunded single employer defined pension plans, allowing them to make payments over 14 years.
Northwest isn't alone reporting a loss for the second quarter. Delta Air Lines also failed to turn a profit. But Continental Airlines and American Airlines parent AMR Corp. had stronger-than-expected earnings.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
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