Shares of Northwest Airlines plunged 58 percent on Tuesday following a press report that the carrier could file for Chapter 11 bankruptcy protection as early as Wednesday.
The New York Times, citing anonymous sources, said both Northwest and Delta Air Lines were very close to filing.
"The shares are down obviously on the New York Times article. That's the only news that came out before the stock began to fall," said Helane Becker, an analyst at Benchmark Cos.
"I think that they will file before October 17 for sure. With oil prices where they are and big pension contributions due, and without higher airfares, Northwest had no choice," Becker said.
The Times report said both airlines were putting the finishing touches on their bankruptcy cases and that both are prepared to file in the United States Bankruptcy Court in New York.
A Northwest spokesman said the company has made no decision regarding a Chapter 11 filing. Delta said on Monday that it would not comment on bankruptcy speculation.
The airline industry has been battered by soaring fuel costs and low-fare competition. United Airlines and US Airways are both nearing the end of their own periods operating under Chapter 11 protection.
Separately, Mesaba Aviation, a regional feeder carrier for Northwest, said on Tuesday it had delivered a notice of default to Northwest after the airline failed to make an USD$18.7 million payment due on Monday.
Mesaba said it had told Northwest it could "exercise available remedies" against Northwest if the payment was not made by September 20.
Also on Tuesday, Northwest began hiring replacements for striking workers, but the union representing the employees said the carrier could not function properly without the strikers' expertise.
Northwest has said the strike by the 4,400 members of the Aircraft Mechanics Fraternal Association has caused no significant service disruptions. But the airline said it would welcome back any workers who wish to cross the picket line.
AMFA members began the strike on August 20 after the two parties failed to reach a deal on a labor contract that would save Northwest USD$176 million a year. The carrier has continued to fly using replacement workers and outside vendors.
AMFA has said Northwest was suffering from the strike and that the workload would overwhelm the replacement mechanics who are less familiar with Northwest's fleet.
Negotiations resumed last week but broke off again on Sunday. The union said Northwest has raised its demands for concessions to USD$203 million annually and proposed cutting 75 percent of its members from the payroll.
Northwest has confirmed that it now was seeking the higher amount from the mechanics.
Northwest had said it needs USD$1.1 billion in annual labor cost savings to restructure and avert bankruptcy, but that it may need to raise its savings target to offset rising fuel prices.
