Delta Bankruptcy Looms, Northwest Air May Follow
bloomberg.com
Sept. 13 (Bloomberg) -- Delta Air Lines Inc., the third- largest U.S. carrier, may file for bankruptcy tomorrow as rising fuel costs and pressure to discount fares reduce its cash, a person familiar with the company said.
Northwest Airlines Corp., the No. 4 U.S. airline, said in a regulatory filing today it decided not to make $42 million of payments on financings and to a commuter carrier. Earlier today the New York Times online edition said the carrier may file for bankruptcy as early as tomorrow.
The biggest U.S. airlines have posted losses of $38.2 billion since 2000 amid soaring costs and competition from discount carriers such as Southwest Airlines Co. A 58 percent rise in jet-fuel prices this year, boosted in part by Hurricane Katrina, made it even harder to match discount fares.
``We are focused on our transformation efforts, as evidenced by the steps we announced last week to further strengthen our network and simplify our fleet,'' Delta spokesman Anthony Black said in an e-mail. He reiterated the company's position this year that ``bankruptcy remains a possibility.''
``The company has made no decision regarding a Chapter 11 filing,'' Northwest spokesman Kurt Ebenhoch said in an e-mail.
Filings by Delta and Northwest would mean four of the biggest U.S. airlines will be operating in bankruptcy for the first time since 1991, when Eastern Air Lines Inc., Braniff Inc., Continental Airlines Inc. and Pan Am Corp. were under court protection, said Lynn LoPucki, a law professor at the University of California at Los Angeles.
Of those, only Continental exists as an independent company today.
Following United, US Airways
UAL Corp.'s United Airlines has been in Chapter 11 bankruptcy protection since December 2002. US Airways Group Inc. filed its second bankruptcy in as many years in September 2004 and is trying to emerge from court protection through a merger with America West Holdings Corp.
Delta has been seeking to avoid bankruptcy for more than a year and averted a filing in October 2004, mainly by winning pay and benefit concessions from pilots that provided $5 billion in savings over as many years. The Atlanta-based airline revived the bankruptcy warning this year amid more losses, increasing fuel prices and declining cash reserves.
Delta said it's seeking more concessions from its pilots. The pilots union said its top council it won't consider the request until Sept. 19.
Shares, Bonds Plummet
Delta shares fell 7 cents to 78 cents at 4:15 p.m. in New York Stock Exchange composite trading. The shares are down 90 percent this year. Delta's 8.3 percent notes maturing in 2029 fell 0.25 cent on the dollar to 15.75 cents to yield 52 percent, according to Trace, the bond-price reporting system of NASD.
Northwest shares tumbled $1.74, or 53 percent, to $1.57 in Nasdaq Stock Market composite trading. The company's 8.875 percent note maturing in 2006 plunged 21.5 cents on the dollar to 22.5 cents.
Northwest, based in St. Paul, Minnesota, didn't make an $18.7 million payment to Mesaba Aviation yesterday and has until Sept. 20 to do so before the commuter carrier ``may exercise available remedies against Northwest,'' Mesaba's parent MAIR Holdings Inc. said in a U.S. Securities and Exchange Commission filing today. Mesaba provided a notice of default to Northwest today, MAIR said.
Northwest said it made the additional decision not to make $23 million in payments on outstanding equipment trust certificate aircraft financings. The airline said it's also obligated to make a $65 million pension payment Sept. 15 or risk a lien against its assets unless it's already under bankruptcy protection.
`Serious'
``It could be a way to signal the market that things are getting serious,'' said George Hamlin of MergeGlobal, an Arlington, Virginia-based transportation consulting firm. ``I'd like to think they'd done better planning in terms of cash flow and the airline's operations. This would be a relatively new and troubling development.''
Northwest said separately that Vappalak A. Ravindran resigned from the company's board Sept. 8. Ravindran, who lives in Australia, decided his location will prevent him from remaining on the board, the company said in a filing.
Delta last week said it will add to profitable international routes, cut flights from Cincinnati and sell 11 of its least efficient planes to lower costs as it tries to avoid bankruptcy. The carrier plans to add or expand service to 41 international destinations and reduce domestic departures from its Cincinnati hub by 26 percent.
Fuel
U.S. carriers have struggled with the price of jet fuel, which has risen 49 percent over the past 12 months. The conflict in Iraq, rising demand and damage to oil rigs from Katrina have helped drive up the price of crude oil, from which jet fuel is refined.
JetBlue Airways Corp., the No. 3 U.S. airline by stock market value, may post its first quarterly loss as a public company this year because of rising jet-fuel prices, Chief Executive David Neeleman said.
Major U.S. carriers began to post losses in early 2001 as a slowing U.S. economy led business travelers to shop for lower fares on the Internet and patronize discount carriers.
Then, the Sept. 11 terrorist attacks chopped passenger traffic by about 30 percent, leading airlines to cut flights and almost 100,000 jobs to reduce costs. Delta had 69,150 employees at the end of last year, down from about 80,000 at the end of 2000. |
