Checchi Won’t Add a Partner in NWA Deal

Los Angeles financier Alfred A. Checchi said Tuesday that he will not take on a new equity partner to replace $225 million of the equity that KLM Royal Dutch Airlines contributed in June to help him buy NWA Inc., parent of Northwest Airlines.

Checchi, who assumed the title of chairman and chief executive last week after the sudden resignation of Steven G. Rothmeier, also said in a telephone interview that he was not surprised that Rothmeier decided to leave. “It was different for him at Northwest as a private company, rather than a public company. I knew that he was exploring his options.”

The Transportation Department on Friday gave Checchi six months to reduce KLM’s contribution to $175 million from $400 million. The department said it was concerned that KLM, as a foreign investor and the largest equity contributor, could exercise control over the airline even though it only held 5% of Northwest’s common shares.

The department has been increasingly concerned about foreign investment in U.S. airlines and said it is possible for a foreign investor to control a U.S. airline even if its ownership stake is small. Federal rules limit foreign ownership in U.S. airlines to 25%.

‘Wouldn’t Make Sense’

Checchi said in the interview that he plans to repay KLM the $225 million, either from Northwest’s cash flow, or from the proceeds of a new issue of nonvoting preferred stock. Another alternative, he said, is to sell a small ownership stake to Northwest’s employees, but he added, “I don’t know how significant a source of capital that would be.”

In any case, he said, “I’m not entertaining the thought of taking on another partner. That wouldn’t make sense.”

Checchi said the source of funds for the repayment would depend on financial market conditions at the time. He said he is confident that he can meet the Transportation Department’s deadline and added that the department agreed to give him one six-month extension of the deadline, if needed.

Checchi said NWA has already reduced its takeover-related debt to $3.1 billion from $3.35 billion. He said the airline is exploring the possibility of developing its land in Tokyo with a Japanese partner and that such a venture “would free up a substantial amount of cash.”

Checchi said he is exploring a commercial development project with 15 to 20 Japanese firms but declined to say what such a deal would be worth. Wall Street estimates for the value of Northwest’s Japanese real estate have ranged from $250 million to $400 million.