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Delta Air soon to emerge from Chapter 11

Delta Air Lines Inc is set to emerge from 19 months of bankruptcy protection in another sign that one of the bleakest chapters for the US airline industry may be coming to an end.

The third-largest US carrier could exit Chapter 11 bankruptcy as early as today after a judge approved the final details of reorganization, leaving Delta with some US$2.5 billion in financing.

Delta and Northwest Airlines filed for creditor protection on the same day in September 2005, which at the time left four of the top six carriers in bankruptcy.

Since that time, the remaining carriers with the exception of Northwest Airlines Corp have emerged from court supervision and the financial picture of the industry has markedly improved.

"This is an exciting day for everyone at Delta," Delta chief executive Gerald Grinstein said after winning court approval of the exit plan.

"Achieving a turnaround of this magnitude in little more than 19 months would not have been possible without the hard work and dedication of Delta people worldwide and the leadership, the vision and the flawless execution of our plan by our outstanding management team," he said.

Delta lost US$6.2 billion last year amid a hefty US$5.4 billion charge for reorganization.

The carrier posted a much narrower US$130 million loss in the first quarter of this year, but sees its financial picture improving after major cost-cutting efforts.

"Delta has fundamentally transformed into a thriving industry leader," Grinstein said.

"We are stronger -- financially, operationally, and in spirit -- and Delta is ready to return to its traditional leadership position in this highly competitive industry," he said.

The US airline industry has been struggling with its worst-ever crisis since the Sept. 11, 2001 attacks triggered a slump in air travel and carriers were hit with record-high fuel prices.

The Air Transport Association of America (ATA), a trade organization of the leading US airlines, is projecting an overall net profit of approximately US$4 billion for passenger and cargo airlines this year after earnings of between US$2 billion and US$3 billion last year.

A profitable last year and this year would be the first back-to-back period of profitability since 1999 to 2000. US airlines lost a total of US$10 billion in 2005.

"In addition to a healthy revenue environment, US airlines are seeing the results of painstaking, ongoing cost reduction efforts and balance-sheet repair," said ATA chief economist John Heimlich, who nonetheless said caution is warranted.

"Although the industry is optimistic and well positioned to move forward, the reality is that events beyond airlines' control could easily push them off course," he said.

The traditional full service airlines such as Delta have been hurt by competition from low-cost startups like Southwest and JetBlue, which do not have "legacy" pension and health care costs and often have lower wages as well.

To streamline, Delta has trimmed some US$5 billion from operating costs compared to 2002 levels. This has included pay cuts amounting to US$1 billion, including concessions from pilots and a reduction in the workforce from 66,500 in 2005 to 47,000.

Delta rejected a takeover bid last year from US Airways Group Inc -- which itself emerged from bankruptcy in a deal that merged with low-cost carrier America West -- preferring to continue as a stand-alone company.

Standard & Poor's rating service said Delta's prospects are improving but that the airline will still have a low "B" credit rating.

"Delta's relatively rapid and successful reorganization should leave the airline with lower operating costs, improving revenue generation and a reduced debt load," S&P analyst Philip Baggaley said.

"Still, the airline's credit profile and its anticipated `B' corporate credit rating continue to reflect also risks associated with participation in the price-competitive, cyclical and capital-intensive airline industry; on below-average, albeit improving, revenue generation; and on significant intermediate-term debt and capital spending commitments," he said.
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