Delta files for bankruptcy protection

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 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.

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.

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."

Wow I really do not know enough about it. It looks to me like it is underpowered, but what do you think?

I am glad I'm not one of the guys making purchasing decisions on it, or a pilot dealing with an engine failure during takeoff climb at gross weight!

The A380, which will be the biggest passenger plane when it comes into service, costs US$282 million to US$302 million each, based on catalog prices.

That is as opposed to $125 million per plane for the 747-400 in the early 1990's

Without any real data, just an engineering intuition, I didn't think it would fly. I thought it would be similar to the Spruce Goose. But apparently it did have a first flight, didn't it, a few months ago?

Airbus sold enough planes to commit the A380 to production. Boeing didn't sell any of the 747X that was to compete with it a couple years ago so that's when they went to the Sonic Cruiser. From an American point of view, I hope the A380 flops. But I haven't heard anything about it lately. I know most airports have to rebuild some structures to accomodate the big plane, so it won't be able to land at very many airports in this country. I can't see them filling up the plane to 100%capacity in this country either. I think Singapore Air was its first customer.

Just curious if you had any more information about it.

Airbus A380 vs Boeing 747

On January 18 the Airbus A380 was officially revealed in a ceremony in Toulouse, France. The A380 represents one of the largest European industrial projects ever, and replaces the Boeing 747 as the world's largest airliner. Table 1 compares the Airbus A380-800 to the Boeing 747-400ER.

**Table 1:** Jumbos compared. Sources: Airliners.net, Wikipedia.
Dimensions
	Airbus A380-800	Boeing 747-400ER
Length	72.8 m	70.7 m
Height	24.1 m	19.4 m
Wingspan	79.8 m	64.4 m
Wing area	845 m²	541 m²
Cabin width	6.58 m	6.10 m
Weights
Operating empty	277,000 kg	181,755 kg
MTOW	540,000 kg	362,875 kg
Powerplants
No. engines	4 turbofans	4 turbofans
Max engine thrust	374 kN (84,000 lb)	276 kN (62,000 lb)
Performance
Cruising speed	902 km/h	907 km/h
Max speed	945 km/h	939 km/h
Range	14,800 km	14,205 km
Capacity
Flightcrew	2	2
Seating (typical)	555	416 (23/78/315)
Seating (max)	840	568
Cargo	N/A	137-158.6 m
Note the difference in the Max TakeOff Weight MTOW as opposed to the disparity in engine total thrust. Like you my engineering intuition says this will be a problem.

3 hours isn't a very long maiden flight, is it?

Actually I think that is okay to good performance for maiden flights. I have no historical info to back that up

About the Acft weight and total engine thrust, look at the increase in wing area and fuselage area. These things incur more drag of course.
More wing area = more lift.. if you've got the engines to push it. Airbus says all the details are worked out, we shall see ;)

The increase in fuel costs might hurt it even if it performs as advertised.

You might notice a trend toward smaller airplane ... such as the 737. The 757 line has shut down. ... the 767 line is almost down. ... Boeing is placing its bets on smaller more fuel efficient airplanes. The new 787 ...

The 787 is not a small airplane. It is a 250-300 seater, with two of the three proposed models bigger than the 767-400. The 787 is also a long-range airplane, intended for coast to coast, and ultra long range international (i.e., Los Angeles to Bankok, nonstop) routes.

The 787 clearly targets Delta's international model above other models. Delta has more long range 767-300 and 767-400 departures than any other airline. Of the three major U.S. international carriers (United, Northwest, and Delta), Delta is the only carrier which does not fly 747s. Instead Delta chooses to offer multiple daily departures with 767s (and the occasional 777).

This might indicate ... the smaller Southwest models will thrive in the near future.

There is no doubt the model of more, smaller aircraft, flying direct between destinations is a trend. Once can see that from the sales of Boeing 737s and Airbus A320s. However, the 787 is not an indication of this domestic trend. Aircraft like the 787 in no way fit into the Southwest domestic model. They do fit into a similar model at an international level, with direct flights between second-tier cities.

Perhaps the 787 will fit in JetBlue's coast to coast model, assuming JetBlue's traffic per departure doubles, requiring an aircraft with more than twice the capacity of its A320s. But JetBlue is likey to adopt the Airbus A350, as Airbus' financing is a tool JetBlue uses to minimize its operating costs.

"I can't explain their pricing."

I can't either! Delta fares have always been higher here in Cincinnati than in any other city. My daughter and I flew to California last year and drove to Columbus to save money on the airfare. It was almost half what it would have been from Cincinnati. Most people here drive to Columbus, Dayton, Indianapolis or Louisville to save money on airfare.

More grist for the mill. A very insightful article IMO

Airlines using bankruptcy as business tool

"There was a time when a major corporation's slide into Bankruptcy Court would have been freighted with significance, convulsion and shame. Now, it's just another business tool.

With Wednesday's filings by Delta and Northwest airlines, four of seven major airlines will be in bankruptcy reorganization.

There are really two airline industries: the dynamic low-fare carriers such as Southwest and the sclerotic cartel of the old "majors" that always finds a way to come back from the dead. The result is the worst of both worlds.

At the moment, labor is a convenient fall guy.

United has used bankruptcy reorganization to eliminate 25,000 jobs and commit the largest pension default in history.

Somebody's profiting, but it's not workers, and not, ultimately, customers.

What we have yet to see is management accountability."

Interesting article. People too easily forget what American unions have done for this country.

"At the moment, labor is a convenient fall guy.
That's odd, considering that every worker who enjoys an eight-hour day, a safe workplace, benefits and whose children don't toil 12-hour days - every one of us can thank organized labor for these good things taken for granted. Those victories were dearly purchased in the 1930s. Today, average Americans are likely to complain about stagnant wages and declining benefits while also bemoaning those nasty airline unions."

Many Americans, 'us people' (go ahead and flame me someone!) too easily forget what Americans have done for this country. And that is whether the forgotten are CEO's, blue collar, white collar, immigrant, general, foot soldier, fly-boy, loader, et al.

I get sick of all the class baiting that goes on sometimes.
It happens on the FR occasionally, but you wont see it come out of the mouths of our administration.

Thanks, that makes a lot of sense. The 787 was built to fill the niche in the mid market range with superior fuel efficiency. What do you think of the A380 market?

I believe the A380 has a very limited market. Basically, look for where a single airline has at least three daily 747 flights for a city pair, and that is where an airline is likely to replace that with two A380s. The airline still wants multiple departures for both customer choice and for connections.

New York to London, San Francisco and Los Angeles to Tokyo, and a few others are likely opportunities.

The real changes in international travel will continue to be the increase in point to point long-range international travel, brought about by the Boeing 767 and 777.

To give an example, as this thread is about Delta Airlines, Delta offers the following long-range nonstop international flights from Atlanta Georgia using 767s and 777s:

Amsterdam, Barcelona, Buenos Aires, Frankfurt, Dublin, Madrid, Manchester, Lima, London, Milan, Moscow, Munich, Paris, Rome, Stuttgart, Sao Paulo, Tokyo, Shannon, and Zurich.

These point to point flights are the wave of the future. Not hub and spoke operations into JFK, LAX, SFO, and MIA.

Well I think it's more than fuel,fuel fuel. The pilots union made a sweet deal with the previous jerk CEO, Leo Mullin. Pilots can retire and walk out the door with a 1 million in at Delta have had wonderful work rules sometimes paid double pay for a flight. It's the other employees in the other departments who can least afford to take a paycut.Unlike the pilots they have had about a 2% pay raise in over a dozen years. Couple that with inflation and their pay has substantially decreased in the past 12 years. Not only that but the other departments which are non-union have incurred severe reductions in staff,medical benefits and a worsening work environment. If Delta announces more than a 15% paycut I would predict a lot of resignations. The mechanics are the only other labor department with substantial pay raises and have an average income of $100,000.

That and I think the mindset of potential passengers. I am in Atlanta several times a year for both business and personal reasons. Post 9-11 and the hassle of steping out of line to be searched (I don't even wear a turban)I drive there now. Sure it's 16 hours each way, but the way things are now I don't care if I ever get on a plane again. That's the mindset that needs fixing.

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