Northwest Airlines (NYSE:NWA) emerged from bankruptcy in late May after more than 20 months under protection. The domestic carrier is the last of the major airlines to emerge from bankruptcy protection and many analysts believe it is now in a strong competitive position relative to other carriers.

Northwest managed to reduce its cost structure by $2.4 billion annually, solve its pension problems, properly size its fleet and reduce its debt load by over $4 billion during its many months of bankruptcy protection. The carrier's operating statistics reported to the Department of Transportation are also promising: The company reduced its operating costs by nearly 11%, increased its yield (fare per mile) by 7% and increased its revenue per available seat mile by nearly 10%.

The turnaround isn't the only reason that investors should be looking at Northwest either. There also exists the potential for more deal-making in the industry. Just today Airtrans extended its takeover offer for Midwest Air while there are still rumors floating around that Northwest could become an eventual target. While Northwest certainly isn't the smallest airline anymore, it could still be considered the smallest of the larger airlines. And with less debt, improved operating margins and eventually a larger footprint, it could easily become a takeover target.

There is no free lunch, however, and many analysts are quick to point out that Northwest continues to face many challenges - the biggest being labor relations. The carrier has had widely publicized labor disputes in the past and just last week it had payment with its attendents. Also of concern is the carrier's plan to spend more than $6 billion to increase its fleet size and expand its footprint. While this is a plan to ultimately increase revenues, there is an inherent execution risk that could hurt shareholders.

So, should investors be looking to take a slice of Northwest for their portfolio? Well, post-bankrupt companies are often undervalued as investors are quick to remember the not-too-distant past. Other major domestic carriers that emerged from bankruptcy have also performed fairly well relative to the market as a whole. Overall, Northwest certainly makes for an interesting investment for investors looking to add a riskier stock to their portfolio.

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