View Full Version : Delta's liquidity struggle raises bankruptcy fear

05-10-2005, 02:18 PM
Delta's liquidity struggle raises bankruptcy fear
Ailing airline sees 'substantial' loss for rest of year

Updated: 12:45 p.m. ET May 10, 2005

NEW YORK - Delta Air Lines Inc., the No. 3 U.S. airline, said cash flow from operations will not be enough to meet liquidity needs this year, raising new alarms the airline could have to file for bankruptcy in the next few months.

In a quarterly filing with the Securities and Exchange Commission, Delta also said it expects a “substantial” loss for the remainder of 2005 as it struggles with record-high fuel prices, low air fares and other cost pressures.

“Unless they sell at least one of their regional carriers, they will be forced to file for bankruptcy within the next six months,” Standard & Poor’s analyst Jim Corridore said. “And if they did sell a regional carrier, it still wouldn’t change their overall situation. It would just buy them more time out of bankruptcy court.”

Delta also said it does not expect to achieve its goal of $5 billion in cost cutting until the end of 2006.

“This is the most aggressive language they’ve used to describe what’s going on,” said Helane Becker, airline analyst at Benchmark Co. “This definitely shows they are now one step closer to bankruptcy. My guess is that they will have to file for Chapter 11 in the third quarter of this year.”

Becker said airlines tend to generate a lot of cash in the third quarter, when the travel season reaches its peak. “If they’re going to have to file for bankruptcy, they will likely do it, and they should do it, when they have the maximum amount of cash on hand,” she said.

Overall 2005 cash needs total $2.4 billion, not including operating losses. Delta has just $1.8 billion in cash on hand unchanged from the previous quarter and $2.2 billion a year ago.

Pension bill
The Atlanta-based carrier, which has managed to narrowly avoid bankruptcy over the past year, said a need to bolster pension costs -- underfunded by $5.3 billion -- over the next three years would also worsen its cash problems.

Delta last week said it faces about $3.1 billion in pension costs between 2006 and 2008. But a bill under consideration by the Senate would stretch out employee pension payments over 25 years, and could ease the airline’s liabilities.

“Absent the enactment of new federal legislation which reduces our pension funding obligations during the next several years, our annual pension funding obligations ... would have a material adverse impact on our liquidity,” the carrier said in its filing Tuesday.

But new pension legislation would only buy the airline more time staying out of bankruptcy court, analysts said.

Its pension obligation for the rest of 2005 is only $230 million. It also has to make $700 million in operating lease payments, $850 million in interest payments, and $640 million in debt that must be repaid as it comes due.

The airline also expects capital expenditures totaling about $690 million, including the purchase of 15 regional jets, according to the SEC filing.

05-10-2005, 03:07 PM
There will be fewer airlines by the end of this decade than there are right now. You can count on one hand the number of major carriers operating domestically that aren't in some kind of financial trouble right now.

05-10-2005, 04:00 PM
You can count on one finger.

There are two things that need to be done: First, the fed needs to come up with a legitimate, coherent policy for air travel, including security and financial loan programs, and the airlines that can't make ends meet need to take a real hard look at whether or not they want to continue to exist.