Never Mind If It's Bankrupt, Buy The Sucker

Dealmakers Al Checchi and Gary Wilson are nothing if not inventive. Since engineering the $3.7 billion leveraged buyout of Northwest Airlines Inc. in 1989, they've raised nearly $2 billion to pay down debt and buy key assets. Now, they're stretching the imagination even further.

Get this: Northwest, despite heavy debt and $175 million in losses so far this year, is talking to bankrupt Continental Airlines Holdings Inc. about investing in the Houston carrier. Never mind that Continental is laying off 600 people, grounding 22 planes, and cutting 6% of its flights in response to its own first-half losses of $290 million. Sources close to Northwest say Checchi and Wilson are huddling with Continental about the prospect of linking the nation's No. 4 and No. 5 carriers.

Lately, Northwest is acting like everyone's buddy. It has announced plans to pump $20 million into America West Airlines Inc.--itself bankrupt--to seal a merger of flight schedules, reservations systems, and frequent-flyer programs. It also inked a two-year, $15 million option to buy America West's route from Honolulu to Nagoya, Japan. Late last year, Northwest bought into ailing Hawaiian Airlines Inc. And it's negotiating with the Trump Shuttle's bank creditors to manage the cash-strapped carrier in return for an equity stake. Observes Shearson Lehman Brothers Inc. airline expert Robert J. Joedicke: "They're taking a piecemeal approach to expansion."

A deal for Continental would be much more ambitious. With strong hubs in Houston and Newark, N. J., and enviable routes to Europe and Japan, Continental is very attractive. Coming up with the money is the trick. Sources close to Northwest say Checchi and Wilson are talking with both Airbus Industrie and Carlson Travel Network about ways to raise money tied to airplane orders and ticket receivables. Carlson and Airbus deny any deal is in the works, and the airlines declined to comment.

NO SURE THING. Although sources say others--including Los Angeles financier Marvin Davis--have looked at Continental, deep problems make any deal a long shot. A recent $120 million bank loan didn't deter heavy cuts of routes and people because of sluggish business. More cuts are likely under new CEO Robert Ferguson. Things have gotten so tough, in fact, that former CEO Hollis L. Harris, days before his Aug. 21 departure, asked his employees to pray for the company three times a day. "God will show us a way to survive," he said.

Given Continental's woes, Northwest would likely avoid a straight merger, opting instead to start with an equity stake and marketing pacts. Yet even that much would require the blessing of Continental's creditors--no sure thing. And with Continental's nonunion work force, Northwest would face a tough sell with its own unions. All in all, the loquacious Checchi has a lot of talking to do if he wants Continental. But as one rival airline executive puts it: "Pulling off the improbable is becoming his forte."

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