updated 7/26/2005 3:12:29 PM ET 2005-07-26T19:12:29

Northwest Airlines Corp., which operates the nation's fourth largest airline, reported Tuesday its second-quarter loss widened to $225 million and warned that it needs pension reform and labor cost cuts to stay out of Chapter 11 bankruptcy proceedings.

Chief executive Doug Steenland said tighter bankruptcy laws that take effect Oct. 17 will be one factor in whether it files for bankruptcy protection, though he said it's not a deadline.

"Frankly we are running out of phrases to describe our results in recent quarters. They are clearly unacceptable," Steenland told analysts.

Northwest lost $2.59 per share in the quarter ending June 30, versus a loss of $182 million, or $2.11 per share, a year ago. Excluding $54 million worth of unusual items, the Eagan-based airline would have lost $279 million, or $3.21 per share.

That was slightly better than loss of $3.29 per share on revenue of $3.079 billion predicted by analysts surveyed by Thomson Financial.

Northwest reported that revenue rose to $3.195 billion from $2.87 billion a year earlier.

Chief financial officer Neal Cohen said Northwest lost an average of $4 million a day during the first half of the year. It ended the quarter with $2.14 billion in cash, down from $2.46 billion at the end of 2004.

Like most other airlines, Northwest has been buffeted by rising fuel costs. It said fuel prices rose 52 percent from the same period last year to an average of $1.64 per gallon. But Cohen said the market doesn't expect prices to go higher, and that Northwest won't hedge its fuel purchases.

But the high prices have prompted a closer look at Northwest's routes. It said third-quarter capacity will increase 1 percent to 2 percent, but it will cut capacity by 3 percent to 4 percent in the fourth quarter. It said it would reduce flights to some cities, but wouldn't eliminate any cities from its schedule.

The news wasn't all bad. Northwest said it was able to raise fares slightly during the quarter, and traffic increased 6.6 percent while capacity increased 4.4 percent.

Northwest has some huge unknowns in its current third quarter, though. Its mechanics can strike on Aug. 20 if no deal is reached between them and the airline. Northwest says it will fly through a strike _ and that it spent $20 million during the quarter to train replacement mechanics to do it.

Some of the money also went toward training replacement flight attendants in case they refuse to cross a mechanic picket line, Cohen said. Steenland said the flight attendant union leaders have acknowledged that their union would not be allowed to conduct a sympathy strike, but the Professional Flight Attendants Association has not said publicly whether it will cross a picket line.

Mediated talks with mechanics are set to resume in Washington on Tuesday.

In a note, J.P. Morgan analyst Jamie Baker called an early 2006 Chapter 11 filing "essentially unavoidable" if Northwest doesn't get pension reform and labor cost cuts.

He called Northwest's planned capacity reductions "a slight positive against an otherwise sobering release, though revenues tend to decline more quickly than do costs when planes suddenly idle."

Steenland also said Northwest would freeze its pension plan for salaried workers and replace it with a defined-contribution plan. It wants to do the same for other workers, and the pilot and ground workers unions have supported a freeze.

Northwest is seeking $1.1 billion in concessions from employees. Pilots and managers have taken a total of $300 million in cuts, and Northwest is seeking $176 million from mechanics.

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