"Dedicated to exposing the lies and impeachable offenses of George W. Bush"

Delta, Northwest file for bankruptcy protection
Financial Times
September 14, 2005

The parent companies of Delta Air Lines and Northwest Airlines on Wednesday filed for bankruptcy protection in a move that could set off an unprecedented restructuring of the US airline industry.

Delta's filing in New York comes a year after the Atlanta-based carrier launched its latest restructuring in a bid to shave $5bn (£2.7bn) from annual costs by 2006.

It has conceded this would be insufficient to stave off the impact of high fuel prices and the weak revenue environment faced by the so-called legacy airlines amid fierce competition from low-cost competitors.

Delta's position is viewed as weaker than Northwest, whose board opted to file following a meeting on Wednesday.

"As we have consistently stated, the airline industry has changed permanently," said Doug Steenland, Northwest's president and chief executive officer. "Northwest must significantly lower its costs to compete with other carriers."

Both carriers had a window to file for bankruptcy before October 17, when new bankruptcy legislation comes into force which gives management far less room to manoeuvre than under the present regime.

Delta, advised by the Blackstone Group, has secured $1.7bn in debtor-in-possession finance from GE Commercial Finance and Morgan Stanley, and agreement in principle for a further $350m from American Express.

The airline hopes to use bankruptcy protection to secure additional savings from employees and has made a proposal to its pilots union.

Both Delta and Northwest said they would move away from defined benefit pension schemes, mirroring the strategy of United Airlines to curb its pension burden after its own bankruptcy filing in December 2002.

Northwest is not using debtor-in-possession funding and will instead rely on its cash balance of $1.4bn, as of September 14, to see it through the process. It is also seeking further concessions from its three union-represented employee groups, with analysts estimating that these need to be raised to an annual $1.4bn to restore profitability.

Delta has higher pension obligations than Northwest and its strategic position is also viewed by analysts as weaker, prompting speculation that the two carriers could even seek to exit bankruptcy together through a merger of the third and fourth-largest US carriers by revenue.

Atlanta-based Delta is the most exposed of the majors to low-cost competitors, and analysts remain concerned about its ability to generate revenues to match even a lowered cost base.

The airline said it would rationalise its fleet and network, increasing its focus on more profitable international services. "Delta's financial problems are severe, but by no means insurmountable," said Gerald Grinstein, Delta's chief executive.

Copyright 2005 Financial Times