Originally created 05/11/05

Delta warns of substantial losses for rest of year

ATLANTA - Delta Air Lines Inc. shares plunged Tuesday after the nation's third-largest carrier warned it will record a substantial loss for the rest of the year and will need to file for bankruptcy if its cash reserves fall too low or lenders seek immediate payment of its debts.

Delta said in a Securities and Exchange Commission filing that it continues to face significant challenges due to historically high fuel prices and low ticket fares.

"Accordingly, we believe that we will record a substantial net loss for the nine months ending Dec. 31 and that our cash flows from operations will not be sufficient to meet all of our liquidity needs for that period," the filing said.

Delta shares fell more than 8 percent in midday trading to their lowest level in nearly seven months.

Delta said that it is considering several moves to keep itself afloat, including more cost cuts and potential asset sales.

But even that may not be enough.

"There can be no assurance that we will be able to implement any of these strategies or that these strategies, if implemented, will be sufficient to enable us to maintain adequate liquidity," the filing said.

Delta, which reported a nearly $1.1 billion loss in the first quarter, had $1.8 billion in unrestricted cash at the end of March.

But in the filing, the airline said it expects that its cash level will be substantially lower by the end of the year if it can't increase revenue, cut more costs, sell assets or restructure debt.

Delta said the financing agreements that it signed with American Express Co. and General Electric Co. last fall to help avoid a bankruptcy filing at that time require that it maintain certain cash levels.

While the airline did not specify those levels in the filing, it said failure to comply with the agreement terms could result in the lenders demanding immediate payment of the money they are owed.

"If this were to occur, or if our level of cash and cash equivalents and short-term investments otherwise decline to an unacceptably low level, we would need to seek to restructure under Chapter 11," Delta said.

Aviation jet fuel costs have risen about 50 percent in the last year for U.S. carriers. Delta, alone, spent $884 million on aircraft fuel in the first quarter, up 54 percent from $574 million a year earlier.

Some analysts have speculated that Delta will sell its feeder carriers Comair Inc. and Atlantic Southeast Airlines. The Atlanta-based company did not specify its plans in the filing.

Delta has significant financial obligations for the rest of the year. Among those are $450 million in pension funding requirements. Delta faces $3.1 billion in pension payments over the next three years. Chief executive Gerald Grinstein has said he supports legislation that would give airlines the option of spreading the funding of their pension plans over 25 years instead of four.

Delta and other carriers are watching closely the actions of United Airlines, a unit of Elk Grove Village, Ill.-based UAL Corp. United sought a judge's approval Tuesday in federal bankruptcy court of its plan to have the government's pension insurer take over its defined-benefit plans, resulting in the largest-ever U.S. pension default. United workers would lose about a quarter of their total pensions if they are shifted to the Pension Benefit Guaranty Corp.

A successful move by United to get out from under its pension obligations, following a step taken successfully by US Airways Group Inc. in February, would put competitors under pressure to follow suit.

Delta shares fell 27 cents, or 8.2 percent, to $3.03 in midday trading on the New York Stock Exchange. The stock closed at $3.02 on Oct. 21, 2004, around the time the airline almost fell into bankruptcy before winning deep concessions from pilots and fresh financing from creditors.

Delta shares have lost more than 90 percent of their value in the last four years, reducing the market value of the company's stock to only about $430 million.

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