Northwest Air bonds off as pilots begin strike vote; GM, Delphi tow auto names lower

By Paul Deckelman and Sara Rosenberg

New York, Feb. 13 - Bonds of Northwest Airlines Corp. were seen losing altitude Monday, as the bankrupt Eagan, Minn.-based Number-Four U.S. airline carrier's pilots began voting on whether to authorize a strike if the bankrupt carrier forces new pay and benefit terms on the captains.

Labor woes were also seen pulling down auto-sector bonds amid investor angst over the looming Friday deadline that bankrupt Troy, Mich.-based automotive electronics maker Delphi Corp. set for its hourly workers to accept the company's new, lower-paying contract offer - or face the chance Delphi will ask the bankruptcy courts to unilaterally rip up the current contract and impose a harsher one.

Bank debt market players meantime reported little or no dealings in the paper of distressed companies.

Northwest's bonds were down a point, a trader said, pegging the company's 7 7/8% notes due 2008 at 34.5 bid, 35.5 offered.

A trader at another desk saw those bonds at 34 bid, down two points.

Northwest's bonds fell as its 5,000 active pilots began voting to give their union leaders strike authorization. That balloting will take 15 days, and union officials could have the power to call a walk out as soon as Feb. 28.

At issue is the effort by the airline, which sought Chapter 11 protection last September, to void the union's current contract and ask the bankruptcy court to impose harsh new terms on the pilots, who are Northwest's highest-paid non-executive employee group. The airline seeks $1.4 billion in annual labor cost cuts, $612 million of which would come from pilots. The airline also wants the judge to tear up the flight attendants' contract and likewise impose harsher terms.

Northwest contends the cuts are necessary to allow the 80-year-old airline to keep flying. It has set Friday as the deadline by which the unions must agree to its downwardly revised contract offer or face the prospect of a court-imposed pay and benefits scale.

While Northwest contends that any threatened strike by the pilots would be illegal under federal transportation law, and said it would oppose a walkout by seeking an injunction, the union contends that it is within its legal rights to do so if the labor contracts are unilaterally dissolved by the bankruptcy judge.

Northwest managed to weather a strike by its mechanics and certain other ground employees last year, relying on a carefully laid out contingency plan that utilized replacement workers and management personnel filling in - but it has said that it cannot cope with a pilots strike, which would effectively mean the end of the airline.

While Northwest's bonds were lower, bankrupt rival Delta Air Lines Inc.'s bonds were seen holding steady around 22 bid, 23 offered.

Auto parts names weak

In the volatile automotive sphere, bonds of troubled parts suppliers were unchanged to somewhat lower, in line with a generally heavier sector due to the troubles of General Motors Corp. and GM's erstwhile problem child, Delphi.

A trader saw Remy International Inc.'s 9 3/8% notes due 2012 half a point lower at 39.5 bid, 40.5 offered. Tower Automotive Inc.'s 12% notes due 2013 were a point lower at 71 bid, 72 offered, while Collins & Aikman Corp.'s 10¾% notes due 2011 were unchanged at 30 bid, 31 offered.

GM's benchmark 8 3/8% notes due 2033 were being quoted down anywhere from 1½ to two points. A trader saw them down 1½ points at 69.5 bid, 70.5 offered, while another trader, who pegged those bonds at that same level, considered that a two-point fall on the session.

GM's 7 1/8% notes due 2013 were meantime seen by a market source as having eased ¾ point to 73.5 bid.

In tandem with the decline in the GM bonds was a retreat in its financing unit's General Motors Acceptance Corp. bonds. The market source saw GMAC's 6 7/8% notes due 2012 down 1½ points to 90 bid.

GMAC's more widely traded 8% notes due 2031were seen by one trader as having fallen two points to 94.5 bid, 95.5 offered, while another saw the bonds down only a point at 94 bid, 94.75 offered.

Yet a third trader opined that "it seemed like they [GMAC] drifted lower. There was a lot of activity in them - there always is - but pretty lackluster movement." He saw the 8s down a point at 94, while the 6¾% notes due 2014 were about unchanged, in his opinion, right around 90 bid.

GM said that it will make an announcement Tuesday afternoon about five of the automaker's Michigan manufacturing sites, four of them located in the greater Detroit area. Company officials were to be joined at Tuesday's news conference by Michigan governor Jennifer Granholm, and several suburban Detroit county executives and other officials. The Wall Street Journal was reporting late Monday on its website that GM is expected to announce that it will spend $500 million to upgrade the five sites, which include two assembly plants, one metal stamping plant and two powertrain facilities. News that the embattled carmaker will spend substantial money on plants in Michigan, which has been hit very hard by the downturn in the U.S. auto industry, represents something of a change in tone for GM, which in November had announced plans to close nine plants and three parts facilities in North America by 2008, with a loss of 30,000 hourly jobs.

A trader said that from what he had seen of the news that GM is slated to announce on Tuesday, "I don't think it's going to be too momentous."

"I don't see that as that big a deal," another trader said, speculating that if the WSJ report is right, people who were looking for some kind of blockbuster announcement from GM regarding either its ongoing efforts to sell a 51% stake in GMAC to a more financially strong bank or its plans to help bankrupt and beleaguered Delphi out with its labor costs, might be disappointed.

Delphi down

The trader said that the auto sector might be more focused on what is - or what is not - going on with automotive electronics maker Delphi, a former GM unit. He saw the company's 6.55% notes due 2006 at 51.75 bid, 52.5 offered, while its 7 1/8% notes due 2029 were at 52.5 bid, 53.5 offered, each down 1½ points.

A second trader saw all of the Delphi bonds "a little lower on the day" in a 52 bid, 53 offered context.

Over the weekend, the local Detroit Free Press reported that GM and its largest labor union, the United Auto Workers, were in talks on an early-retirement program that would allow Delphi to shift workers back to the automaker as a means of cutting its burdensome labor costs - costs it inherited when it was spun off from GM back in 1999.

The paper reported that the buyout packages under discussion would create job openings for Delphi workers, particularly at five GM assembly plants. The plants apparently are not the same ones GM will be talking about Tuesday - they are located in Arlington, Texas, Fairfax, Kan., Fort Wayne, Ind., Wilmington, Del., and Shreveport, La., the paper said, attributing its information to an unidentified UAW local leader who had been briefed by union executives.

Delphi is looking to cut its labor costs - either by shedding plants and workers by having GM take them on, the way rival Ford Motor Co. took 23 high-cost plants off the hands of its former subsidiary, Visteon Corp., last fall, thus saving the Van Buren Township, Mich.-based company from a likely bankruptcy filing, or by having its workers accept lower wages and benefits than they've been getting. Delphi has set Friday as the deadline for the UAW and other unions to voluntarily accept that truncated compensation package or else see the company ask the bankruptcy court to void its current contracts and impose the harsher terms, which could also include plant closings and job eliminations. The unions have warned that could lead to a strike - which could, in turn, badly hurt GM, which depends heavily for parts on Delphi, still its single largest supplier.

The first trader also noted another story - to the effect that Delphi is looking to sell some of its operations, wondering whether that may have weakened the company's bonds. The company, he said, is reportedly in late-stage talks to sell some of its facilities and operations, including its engine and chassis division and its safety systems business. According to the reports, the operations under consideration for sale would account for as much as half of the company's annual revenues.

"So I don't know if that would happen, where it would leave Delphi," he said.

He further noted that "in both bonds and stocks today [Monday], it seemed like a hollow day - maybe people [in New York and other parts of the blizzard-bashed Northeast] are still getting over the snow storm, or what, but it doesn't seem like it would take a hell of a lot to move any of these things today."

Other auto names dip

With all of this going on, he suggested, there might be some general anxiety among auto-sector investors, leading to the liquidation of long positions.

He saw Visteon's 8¼% notes due 2010 down 1¼ points at 82.5 bid, 83 offered, while Lear Corp.'s 5¾% notes due 2014 were likewise 1¼ points down at 78.25 bid, 79.25 offered. Ford's 7.45% notes due 2031 were 1½ points lower at 70 bid, 71 offered, while its Ford Motor Credit Co. financial unit's 7% notes due 2013 were also a point in the hole at 88.5 bid, 89 offered.

Another trader, while seeing Ford and GM off, said "the suppliers didn't do very much." He saw the Ford bonds down a point at 70.5 bid, 71.5 offered, although he also saw the Visteon 81/4s at 82 bid, 83 offered, and Dana Corp.'s 7% notes due 2029 at 67 bid, 68 offered, each down a point on the day.

Dura Automotive Systems Inc.'s bonds were meantime unchanged, he said, with the Rochester Hills, Mich.-based components company's 8 5/8% notes due 2012 at 81.5 bid, 82.5 offered and its 9% notes due 2009 at 52.5 bid, 53.5 offered.

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