Home / World Business
Mon, Aug 15, 2005 - Page 12 News List

Delta tries to keep flying, even while filing for bankruptcy

BLOOMBERG

Delta Air Lines Inc, which has lost money for the past four years, is seeking financing from its lenders that will allow it to keep flying if it declares bankruptcy, people familiar with the situation said.

The airline, the third-largest US carrier, is in discussions with General Electric Co's financing arm and hasn't worked out details, the people said. Delta CEO Gerald Grinstein for months has said the company may be forced to seek protection from creditors if it can't reduce costs or its cash reserves drop too low.

For more than a year, Atlanta-based Delta has tried to avoid the fate of UAL Corp's United Airlines and US Airways Group Inc, which are both operating in bankruptcy. A drop in travel after the Sept. 11 terrorist attacks, record fuel prices and an increasing reluctance among vendors to work with Delta have helped push the airline closer to seeking court protection.

"It's looking more and more like they're closing in on bankruptcy," said Ray Neidl, a Calyon Securities USA Inc analyst based in New York. "The whole industry is hurting, but Delta is closest because of its cash situation." Neidl doesn't own Delta shares.

Delta spokesman Anthony Black said the company has discussions regarding financing as a matter of course and declined to comment on any specifics. GE spokesman Ned Reynolds also declined to comment. The financing was reported by the New York Times early yesterday.

Airlines have had to contend with a 58 percent increase in jet-fuel prices that has sent costs soaring this year. Spot prices in New York rose to US$1.96 a gallon yesterday, the highest ever. Crude oil, from which jet fuel is refined, reached a record US$67.10 a barrel on concerns that demand will outstrip production.

The rising price of fuel added about US$655 million to Delta's expenses in the first half, and jet-fuel prices have increased another US$0.31 since the end of the second quarter. Each US$0.01 increase in the price of a gallon of jet fuel boosts Delta's fuel costs by US$25 million, according to company documents.

Delta was able to avoid bankruptcy last year when it cut US$1 billion out of its annual costs by lowering the pension and health-care benefits of its pilots.

"Delta will probably file before mid-October," said Sean Egan, managing director of Egan-Jones Ratings Co, an independent debt rating firm in Haverford, Pennsylvania. The airline's biggest problem is competition from low-fare carriers, Egan said.

Delta competes against AirTran Airways out of its Atlanta hub and along the East Coast with JetBlue Airways Corp and Southwest Airlines Co, forcing it to offer discount fares in those markets.

The company has tried to soften the impact of rising fuel costs by increasing prices. On Aug. 11, it raised fares US$10 each way in most markets, and between US$3 and US$5 on routes where it competes with the low-fare airlines. Delta earlier in the year tried to win customers by cutting fares as much as 50 percent.

This story has been viewed 3245 times.
TOP top