Delta, Northwest Airlines File for Bankruptcy
By James F. Peltz, Times Staff Writer
3:06 PM PDT, September 14, 2005
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The nation's airline crisis took a stunning turn for the worse today when Delta Air Lines Inc. and Northwest Airlines Corp. both filed for bankruptcy in the face of massive losses, meaning that four of the seven largest U.S. carriers are now flying in Chapter 11 bankruptcy.
Delta and Northwest joined United Airlines and its parent UAL Corp., along with US Airways Group Inc., in seeking protection from its creditors in Bankruptcy Court.
Rarely have four of the largest players in a major business found themselves in bankruptcy simultaneously. It's a dubious feat that some analysts said marks the onset of a climax to the industry shakeout that many have predicted since the airlines were deregulated in 1978.
The filings by Delta and Northwest weren't expected to have an immediate effect on travelers. The nation's airline crisis took a stunning turn for the worse today when Delta Air Lines Inc. and Northwest Airlines Corp. both filed for bankruptcy in the face of massive losses, meaning that four of the seven largest U.S. carriers are now flying in Chapter 11 bankruptcy.
Delta and Northwest, the third- and fourth-largest airlines respectively by passenger traffic, joined United Airlines and its parent UAL Corp., along with US Airways Group Inc., in seeking protection from its creditors in Bankruptcy Court.
Rarely have four of the largest players in a major business found themselves in bankruptcy simultaneously. It's a dubious feat that some analysts said marks the onset of a climax to the industry shakeout that many have predicted since the airlines were deregulated in 1978.
The filings by Delta and Northwest weren't expected to have an immediate effect on travelers.
Under Chapter 11, a company continues operating while it works out a reorganization plan to repay creditors. Delta and Northwest said they would maintain their current flight schedule and frequent flier plans. United and US Airways have done the same.
"Delta is open for business as usual and will continue normal operations," Delta Chief Executive Gerald Grinstein said in a statement, adding that passengers' travel plans and frequent flier miles "are secure."
At Los Angeles International Airport, Delta ranks as the fourth-largest carrier, with 7.6% of passenger traffic during fiscal 2004, according to airport statistics.
Northwest ranks as the seventh-largest carrier at LAX, accounting for 3.6% of the airport's passenger traffic.
The Delta and Northwest filings underlined the financial debacle occurring in an industry that has lost $30 billion since 2000 and is on track to lose an additional $5 billion to $10 billion this year.
There are still too many airplane seats chasing too few passengers, many analysts contend, and most carriers' ability to stay in business using bankruptcy reorganization has kept that trend going. But with so many big airlines in bankruptcy at once, a shakeout could truly be coming, they said.
"It's imperative that the traditional airlines regroup and become stronger," said Hugo Burge, president of Cheapflights.com, a travel website. "The airlines can't go on as they are, and something needs to give."
Over the past few years the airlines have been pummeled by a list of problems, including the post-Sept. 11 drop in air travel, the growth of discount airlines that pushed fares lower, bloated cost structures, enormous debt loads, excess capacity and soaring jet fuel prices.
The price of fuel — an airline's second-biggest expense after labor — surged above $2.30 a gallon after Hurricane Katrina disrupted the Gulf Coast's refining operations, and it helped push Delta and Northwest into bankruptcy. Before the storm, fuel cost less than $1.90 a gallon.
Northwest said it expects to pay about $3.3 billion for fuel this year, compared to $2.2 billion in 2004.
Northwest's effort to reorganize its operations outside Bankruptcy Court "have been overtaken by skyrocketing fuel costs," said airline President Doug Steenland in a statement.
Northwest's woes deepened last month when 4,400 members of the Aircraft Mechanics Fraternal Assn. went on strike over the wage and benefit cuts proposed by the airline. The carrier has managed to operate more than 95% of its flights by bringing in replacement workers to replace the striking employees.
Delta, once a prosperous carrier admired for customer service laced with Southern hospitality, has lost $10 billion since 2000 and is saddled with more than $20 billion in debts and pension obligations. |
