......INTO BANKRUPTCY!
WoW! Big Shocker!!
http://quote.bloomberg.com/apps/news...d=aA1km2BHAzng
Delta Air May Seek Bankruptcy If It Can't Cut Costs (Update4)
May 10 (Bloomberg) -- Delta Air Lines Inc., whose pilots have balked at a 30 percent pay cut, said it may be forced to seek bankruptcy protection unless it's able to reduce costs, stem losses and raise capital.
The comment in a regulatory filing today by Atlanta-based Delta, the third-largest U.S. carrier, follows US Airways Group Inc.'s statement last week that it may need to seek bankruptcy protection again unless its unions agree to more concessions. Labor is airlines' biggest expense.
The two airlines have continued to post losses as low-fare carriers such as Southwest Airlines Co., JetBlue Airways Corp. and AirTran Holdings Inc. step up competition. Delta Chief Executive Gerald Grinstein on April 23 called a pilot pay-cut offer inadequate and said bankruptcy could ``easily be avoided.''
Delta is ``raising the possibility of bankruptcy to help persuade their pilots to entertain financial concessions,'' said Standard & Poor's analyst Philip Baggaley.
The union didn't immediately respond to a call seeking a comment.
The airline's shares declined 64 cents, or 12 percent, to $4.74 in New York Stock Exchange trading at 3:41 p.m. They have fallen 60 percent this year and since April 29 have been at their lowest since at least 1980, according to Bloomberg data.
Delta said today in its filing with the U.S. Securities and Exchange Commission: ``If we cannot achieve a competitive cost structure, regain sustained profitability and access the capital markets on acceptable terms, we will need to pursue alternative courses of action intended to make us viable for the long-term, including the possibility of seeking to restructure our costs under Chapter 11 of the U.S. Bankruptcy Code.''
Losses Since 2000
Since 2000, Delta has posted $3.26 billion in losses mainly because competition reduced fares and revenue. Grinstein, who took over as chief executive this year after Leo Mullin resigned in November, is reviewing all of Delta's operations in an effort to help stem the losses.
The filing said Delta has ``significant obligations'' due next year, including $1.23 billion of debt. Delta also expects 2005 employee pension contributions of more than the $460 million paid this year and about $1 billion in aircraft financing.
Delta had $2.45 billion in cash as of the end of March, down from $2.92 billion three months earlier. It borrowed $225 million in the first quarter for regional-jet purchases and in February issued $325 million in convertible senior notes and agreed to buy 32 more of the smaller jets, valued at $780 million.
Competitors US Airways, UAL Corp.'s United Airlines and AMR Corp.'s American Airlines have reduced costs through filing for or threatening to seek bankruptcy, Delta said in the SEC filing.
Pilot Talks
The pilots are Delta's only major employee group represented by a union. The union offered to accept a 9 percent reduction and forgo a 4.5 percent increase that was due this month. The wage increase was paid, increasing annual costs by $85 million, according to the filing.
Delta was also recently required to start recalling 1,060 pilots laid off after the Sept. 11 attacks because passenger traffic exceeded the amount stipulated by an arbitrator.
Analysts and labor leaders won't be surprised by the disclosure that bankruptcy is a possibility, Baggaley said. The widening spread between the prices on Delta bonds and benchmark U.S. treasury bonds since the pilot talks stalled last year have reflected the worsening situation, he said.
US Airways, which raised the possibility of seeking bankruptcy protection a second time, in an SEC filing Friday, has been briefing employees on its new strategy and plans to seek more pay and benefit concessions in the next few months. US Airways exited bankruptcy in April 2003, helped by worker concessions.
To contact the reporter on this story:
Lynne Marek in Chicago at
lmarek@bloomberg.net
To contact the editor responsible for this story:
Steve Geimann at
sgeimann@bloomberg.net
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