NWA's future up in the air


Grant's Interest Rate Observer scores with a scoop on the finances of St. Paul-based NWA, the parent of Northwest Air, which went private in 1989 in a leveraged buyout. After the newsletter had speculated several weeks ago about the company's finances, a reader slipped editor Jim Grant a copy of the not-readily-available 1990 financial statements.

It showed the kinds of things that LBO investors don't like to see. For example, the amount of cash in NWA's coffers slid 42 percent between year-end 1989 and year-end 1990. Shareholder equity, which is one way to value a company's worth, tumbled 45 percent.

As for earnings? What earnings? The company lost $300 million last year. That compares with a $163 million profit in 1988, just before the buyout.

In the past the company refused to take on any debt; now it is heavily burdened. (The airline was controlled for many years by tightfisted Donald Nyrop, who ordered the doors removed from the stalls in the men's rooms so workers wouldn't dawdle.)

But one big NWA investor isn't worried. San Francisco money-manager Richard Blum, a NWA director -- whose firm is its second-largest shareholder with a $100 million stake -- argues that it's "naive" to focus on earnings.

"What matters much more in the airline industry is cash flow," he says. NWA's cash flow hasn't been positive in the past six months; it's tough to find an airline where cash flow has been! But Blum thinks the cash-flow situation at NWA is "not nearly as negative as the operating-loss numbers would imply."

Blum notes that even with the industry in a tailspin, Northwest added employees, pared its debt by nearly half and -- perhaps most importantly -- didn't tap a $600 million line of credit. "The last two quarters will be looked at as the worst that the airline industry has seen," he says, "yet our business has improved materially."

In fact, he says, several major investment-banking firms approached the company recently "to talk to us about going public again. We have no interest in going public at this time. But in each case, the valuation they gave us was a price greater than we paid for it."

Which either means the market for new issues is overdone, or NWA will be a survivor.

Blum is betting on the latter.

NUT HOUSE: There was a time when macadamia nuts were in short supply, and the units in the Mauna Loa Macadamia Nut limited partnership seemed appetizing. But Hawaii no longer has the corner on the macadamia-nut market, and last year "the market was so flooded with foreign nuts that the local independent growers were virtually giving away their nuts," says broker Randy Havre of J.B. Havre Securities in Honolulu.

He recently advised his clients to sell the partnership's units, which have come down only modestly in price so far. "Needless to say," he says, "the weak nut prices will show up in the unit price eventually, particularly since commercial users of the nuts don't care where the nuts are grown."

MODEL MODELS: The model portfolios recommended by Jim McCamant's Berkeley, Calif.-based Medical Technology Stock Letter scored an impressive 206 percent average gain for the three years ended in March. That made the newsletter No. 1 for the period, as ranked by Hulbert Financial Digest.

"It's clearly been easy to make money in the stocks I'm working on, particularly in the past six months," McCamant says.

But he warns that there's not much room for further upward movement. His trading-oriented portfolio is invested 25 percent in cash or equivalents; in October it was 150 percent invested in stocks (it trades on margin).

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