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Delta files for bankruptcy protection
Atlanta Journal-Constitution ^ | 9-16-2005 | Russell Grantham

Posted on 09/14/2005 2:27:17 PM PDT by Turbopilot

Delta Air Lines filed for bankruptcy court protection from creditors Wednesday, finally conceding that it cannot reverse four years of massive losses without restructuring its finances under a judge's supervision.

The Atlanta-based airline, the nation's third-largest, said it will continue normal operations and that its entrance into Chapter 11 proceedings won't affect flight schedules. The company, which has about 25,500 locally based workers, said employees and retirees will continue to be paid.

Delta's bankruptcy judge is expected to approve a raft of initial motions to ensure continued operations.

Delta said it has obtained $1.7 billion in so-called debtor-in-possession financing, primarily from GE Commercial Finance and Morgan Stanley, to sustain operations during the reorganization.

Led for the past 20 months by chief executive Gerald Grinstein, Delta struggled mightily to craft a turnaround outside bankruptcy court. But a filing became widely expected as high fuel costs undermined the effort this summer, and the price spike after Hurricane Katrina tightened the screws.

"It was already fourth and long when Mr. Grinstein took over," airline industry consultant Michael Boyd said. "The three reasons he wasn't able to avoid bankruptcy are fuel, fuel and fuel."

Delta joins United Airlines and US Airways as the third major U.S. airline flying under bankruptcy court protection, although those carriers may soon emerge. While Delta plans business as usual, it faces an uncertain journey through a long and delicate legal process that has been a lifesaver for some companies but quicksand for others.

"Delta has every chance of coming out of Chapter 11 in a relatively short period of time," said Morton Beyer, retired chairman of industry consulting firm Morten Beyer & Agnew.

"But the bankruptcy court judge is going to have a lot to say about it, and so will labor and lenders," he added. "Delta's fate is no longer in its own hands."

Filing Chapter 11 enables Delta to suspend certain debt payments while crafting a plan for paying off creditors and operating profitably when it leaves bankruptcy court. Delta's debts have ballooned to more than $20 billion as it financed losses since early 2001.

The process could include deeper changes, however:

• The airline, with a judge's approval, could pare more unprofitable flights, shedding more employees and aircraft in the process. It's already eliminated one hub and made plans to scale back another.

• Delta could follow United in seeking to terminate its pension plans, now underfunded by about $5.3 billion, shifting the responsibility for payments onto the quasi-federal Pension Benefit Guaranty Corp.

• Companies often get new major stakeholders or top executives while in Chapter 11 proceedings. Grinstein, 73, has already indicated he will leave within a year or so.

• Delta's current stock — already shoved under $1 a share by the financial stress — could become worthless.

• Delta, which has among the weakest international networks of the major airlines, could also ultimately be merged with another carrier, some industry experts have suggested. US Airways hopes to emerge from Chapter 11 through such a combination with America West.

Delta filed its case in federal bankruptcy court in New York, which has experience handling major corporate bankruptcies.

In addition to first-day motions to assure operations, other early matters before the judge will include formation of committees representing different classes of creditors. The entire case is likely to take months or even years. United, for instance, is in its third year flying under Chapter 11.

Prosperity gone

While not unexpected, the filing is a huge comedown for a company long known as an Atlanta success story.

Delta was founded in Louisiana in 1924 and moved to Atlanta in 1941. For the next 50 years it was one of the industry's more successful players. It profited from rival Eastern Airlines' slow demise after deregulation and became known for well-compensated workers and the "Delta family" culture.

That culture eroded during a financial slump in the early '90s after Delta bought Pan Am's European routes and was hit with soaring fuel costs and a recession after the earlier Gulf War. But Delta recovered to post record profits in the latter half of the decade.

Delta's current slump started when the economy slowed in early 2001. It accelerated when 9/11 sent big carriers into freefall while also opening the door for rapid growth among discount competitors.

Initially, Delta was in better shape than most other big airlines, having bankrolled $2 billion from borrowings shortly after 9/11. But high costs and debt, a decline in high-fare business travel, Internet fare-shopping and the growth of discounters in key markets led to losses that tapped out Delta's credit and eroded cash reserves. By the end of this year alone, Delta faced $2 billion in debt, pension and capital obligations before Wednesday's bankruptcy filing.

The discounters, such as AirTran and Southwest, increasingly dictate pricing and have lower cost structures that allow them to make money on lower fares. Delta and other so-called "legacy" airlines have higher costs due to more complex hub operations and more senior employees with traditional pensions, among other factors.

Delta also suffered the distraction of an executive pay controversy in 2003, when it disclosed that top executives took big bonuses and set up bankruptcy-proof pension trust funds for themselves amid mounting losses. A subsequent management overhaul delayed a critical pilot pay cut deal and serious restructuring moves.

Under Grinstein, a longtime board member who became CEO in the shakeup, Delta launched a massive turnaround plan one year ago, including job and pay cuts, closure of a Dallas hub and revamped schedules at its Atlanta hub. Those moves, plus a pilot contract cuts and financing from key business partners, helped Delta avert a Chapter 11 filing last fall.

Through the first half of this year the changes had cut non-fuel costs almost 12 percent. But jet fuel costs soared unexpectedly. Delta said it expects fuel costs this year to be about $1.5 billion more than in 2004, consuming all of the savings from the pilot deal and then some.

Plenty of passengers

Delta doesn't lack passengers. Through the first six months of 2005, traffic was up 7 percent and revenue up 4.6 percent vs. 2004. But costs rose 9.8 percent, led by a 53 percent jump in the average price per gallon of jet fuel. Delta posted net losses of $1.45 billion for the first half of the year, or about $1 billion excluding special items such as restructuring charges.

Chapter 11 filing gives the airline powerful leverage to seek lower payments to shed billions in debt and pension obligations and, with a judge's approval, make further cost-saving internal changes.

Last month, Tejas Securities analyst Robert Halder estimated that almost $7 billion of Delta's debt is unsecured. In the bankruptcy reorganization, most of that debt is likely to be converted from debt to new stock at pennies on the dollar, experts say.

But sustained high fuel costs will compound Delta's challenge — and could even threaten the prosperity of the discounters. Experts say that in Chapter 11 Delta likely will launch new waves of turnaround tactics, well beyond last fall's plan.

Delta's stakeholders also expect the airline to rapidly move to cut employees' pay and pension plans and retirees' medical benefits. Monday, Delta sent its pilots — its only large employee union — "a comprehensive, deeply concessionary contract proposal," the union said. Pointing to cost cuts United has wrought in Chapter 11, industry analysts believe Delta could move to terminate its pension plans and seek pay and benefit cuts and efficiency improvements totalling $400 million to more than $1 billion annually.

That's on top of more than $1 billion in annual payroll givebacks from last year, when Delta cut most employees' pay 10 percnet and pilots took 32 percent pay cuts following protracted negotiations. Prior to that they had been by far the industry's highest paid pilots, owing to a lucrative contract inked just four months before 9/11.

In bankruptcy court, if further talks fail to yield a deal with the union, Delta can ask the judge to impose terms. In other airlines' bankruptcy cases, that threat has usually resulted in concessions deals without a judge's intervention.

Delta's other big worker groups — agents, mechanics, flight attendants and office workers — are not represented by unions.

Richard Aboulafia, aerospace analyst at the Teal Group, said Delta was making real progress in cutting costs and improving operations before this summer's fuel price spike. But the airline was so weakened by four years of losses that it ran out of options.

"The world owes Delta one bankruptcy filing," he said. "The company has paid its bills for more than 75 years. It's a conservative carrier and an industry leader that's the victim of circumstances beyond its control.

"Delta didn't go on some spending spree that caused all these problems," Aboulafia said. "They slowly built up over time. Other airlines have been desperate. But Delta always seemed to have more time."

— Staff writer Dave Hirschman contributed to this article


TOPICS: Breaking News; Business/Economy; Front Page News; News/Current Events; US: Delaware; US: Georgia; US: New York
KEYWORDS: airlines; dal; delta
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To: Turbopilot

Because the middle class is shrinking,
the dinosaur airlines are doomed.

...

Why would anyone invest in an airline?


121 posted on 09/14/2005 8:33:39 PM PDT by greasepaint
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To: greasepaint
Because the middle class is shrinking

False nonsense.

the dinosaur airlines are doomed.

False nonsense.

Why would anyone invest in an airline?

Vast capital investments, name recognition, and enormous established infrastructures for pennies on the dollar. Why not, at current prices?
122 posted on 09/14/2005 8:43:29 PM PDT by Turbopilot (Nothing in the above post is or should be construed as legal research, analysis, or advice.)
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To: phantomworker

"The solution seemed to be to revamp the entire airport infrastructure".

Maybe I'm missing something here. When I fly Southwest, very little problems. If there is a problem, they fix it.

When I have flown Delta numerous times, and there are problems,...crickets.

Have you ever noticed that when you walk directly off some flights, there is no monitor to tell you where to go? Also, I had a recent incident where there was no one monitoring the information booth at DFW. So instead, a frequent flyer jumped up at the lectern and manned the booth and she gave out excellent information. I bet she helped 20-30 people and none of them had a clue she wasn't an employee. We both laughed about that.


123 posted on 09/14/2005 8:48:14 PM PDT by Tulsa Ramjet (home of the free because of the brave.)
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To: RunningWolf

I can tell you that right now there are no 3 yr 777 FOs at Delta.


124 posted on 09/14/2005 8:51:09 PM PDT by USNBandit (sarcasm engaged at all times)
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To: StolarStorm

Well, if the major creditors WANT to keep current management then obviously they are going to have to give them an incentive. I am not sure if it is known if delta's management will be sacked or not, i don't follow airlines almost at all until they get their delisting and 'Q'


125 posted on 09/14/2005 9:16:46 PM PDT by WoofDog123
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To: NYorkerInHouston
They were in trouble before Katrina. If they go down, the marketplace will take up the slack. Compete or go out of business. Just don't come begging for tax dollars in a bailout scheme.
126 posted on 09/14/2005 9:19:15 PM PDT by newzjunkey (CA Freepers, HELP Enforce Our Border: http://www.CaliforniaBorderPolice.com/)
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To: Tulsa Ramjet; patton

Within the SW airline itself, it might be efficient. The Southwest model is well-known, of course. But SWA has to interface with other airport operations such as security, the tower, Air Traffic Management, etc, etc. Many of these operations are not coordinated like they could be. As with any system of systems, the interfaces need to be managed, and within an airport, the interfaces between operations are not as efficiently managed as they could be.


127 posted on 09/14/2005 9:33:32 PM PDT by phantomworker (It is not the answer that enlightens, but the question.)
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To: USNBandit

Delta has 777's? Then they must be doing something right.


128 posted on 09/14/2005 9:47:09 PM PDT by phantomworker (It is not the answer that enlightens, but the question.)
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To: USNBandit

Whats left at Delta? 10yr and above?


129 posted on 09/14/2005 9:56:37 PM PDT by RunningWolf
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To: USNBandit
airlinepilotcentral.com/content/view/154/91/ shows the following for Delta 777

A 3yr 777 FO = $125 @ 65 HRS guaranteed

A 7yr 777 FO = $138 @ 65 HRS guaranteed

A 12yr 777 FO = $147 @ 65 HRS guaranteed

BTW is Delta still flying the 737-200?
130 posted on 09/14/2005 10:05:14 PM PDT by RunningWolf
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To: RunningWolf

http://www.delta.com/about_delta/corporate_information/delta_stats_facts/aircraft_fleet/index.jsp


131 posted on 09/14/2005 10:20:18 PM PDT by phantomworker (It is not the answer that enlightens, but the question.)
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To: USNBandit

Did DOT ever get around to arming pilots?


132 posted on 09/14/2005 10:21:16 PM PDT by investigateworld ( Abortion stops a beating heart.)
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To: Turbopilot
Vast capital investments, name recognition, and enormous established infrastructures for pennies on the dollar.

I agree. The route structure of UAL is very strong, IMO it is what will save it.

Also it is a travesty that these low cost guys come in and get a free ride on the infrastructure that the majors built for them.

Take a JetBlue. You've got new AirBus's which Airbus practically gives them away for a few years, then that your non-routine maint. costs are almost nil for the 1st 6yrs approx, you've got new employees with no benefits, no vacation, lower pay, a tax break, you do your heavy maint. in El Salvador, you've got your reservation agents working out of their homes. WHO CANT MAKE MONEY WITH THAT?
133 posted on 09/14/2005 10:27:05 PM PDT by RunningWolf
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To: phantomworker

At least Delta doesn't have any of that government-subsidized foreign-built Airbus junk in their fleet. lol


134 posted on 09/14/2005 10:28:07 PM PDT by phantomworker (It is not the answer that enlightens, but the question.)
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To: phantomworker
Thnaks,

Those 737-200's and 737-100's are the ones that have been dropping out of the sky all over the world in the last few months.
That one that de-pressurized and then ran out of fuel over the ME was a -100 or -200 I recollect.
Those old dogs need to be in the bone the bone yard. That old theory you can maintain a plane (safely) forever has been shown to be wrong.
135 posted on 09/14/2005 10:34:03 PM PDT by RunningWolf
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To: RunningWolf

That's very interesting how JetBlue makes a profit. And that's true that Airbus practically gave those airplanes away. That's how they can claim they sell more planes than Boeing the last few years.

Do you think the larger carriers should or could emulate the JetBlue model of operations?


136 posted on 09/14/2005 10:35:04 PM PDT by phantomworker (It is not the answer that enlightens, but the question.)
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To: investigateworld
Yes, but to do it they become a Federal Flight Deck Officer (FFDO) program
137 posted on 09/14/2005 10:38:39 PM PDT by RunningWolf
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To: phantomworker
I'm not in the ivory towers, or any mahogany rows but I am a long term insider, and thats where the basis of my opinions spring from.

I think they will and already are emulating the pieces they see advantageous too and that they can. At the same time they cant go all the way there, nor should they.

IMO JetBlue is like a Southwest. Southwest is very big, but they fill a niche with their 737 fleet and their style of service & like Jet Blue they won't replace the mainliners. You need the mainliners for the heavy lift long range capacity.
138 posted on 09/14/2005 10:55:21 PM PDT by RunningWolf
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To: RunningWolf

Thanks for the info, hopefully it's common.


139 posted on 09/14/2005 11:00:20 PM PDT by investigateworld ( Abortion stops a beating heart.)
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To: RunningWolf

Thanks, I appreciate that. Your opinions and analysis make a lot of sense. It's good insight.


140 posted on 09/14/2005 11:13:25 PM PDT by phantomworker (It is not the answer that enlightens, but the question.)
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