"Delta's Ch. 11 filing: When, not if"

Tuesday, June 8, 2004

Delta's Ch. 11 filing: When, not if 
Analyst: Probable before end of year 
By Alexander Coolidge 
The Cincinnati (OH) Post


For some analysts, it's now a question of when Delta Air Lines might
file bankruptcy, not if.

Jamie Baker, an analyst with JP Morgan Securities Inc. in New York, told
investors late last week he thought the airline would more likely seek
Chapter 11 protection before the slower winter months further drain
company coffers. He also said the airline needs more than just pay
concessions from pilots, it needs to wring $300 million by restructuring
its aircraft debt. 

"Our timing for a potential Chapter 11 at Delta has accelerated to
year-end," he said. "Given stubborn industry fundamentals, we doubt
(Delta) will choose to endure the seasonally-weak winter period while
watching its cash balance erode further -- We no longer believe Delta
enjoys the relative luxury of a mid-2005 decision." 

As the airline continues to battle sky-high fuel and labor costs,
bankruptcy looms as a larger possibility for the airline, which has
failed to cut a deal with its pilots union to lower pay and operating
expenses. 

The Atlanta-based airline maintains its second-largest hub at
Cincinnati/Northern Kentucky International Airport and is a major
employer here. It said last month it was considering a Chapter 11 filing
as one of its options. 

Baker added that sky-high fuel prices would push Delta's total 2004
losses to about $968.8 million, compared with his previous forecast of a
loss of $613.9 million. The company has already lost $383 million in the
first quarter. Delta has lost $3.6 billion since the end of 2000. 

Fuel costs are "a big deal because that's their second-highest cost
behind labor," said Suzanne Betts, an analyst with Argus Research Corp.
in New York. She added that legacy carriers like Delta are more
vulnerable to fuel costs now that many have sold hedging contracts that
previously insulated them from cost spikes. 

"They're at the mercy of whatever the fuel costs are," she said. Those
costs are expected to remain relatively high for most of 2004. 

Company officials blame their pilots' industry-leading pay for draining
its resources while rivals have cut labor costs amid an industry
slowdown in the past three years. The Air Line Pilots Association, which
represents the pilots, accuses management of taking a rigid stand. 

"The Delta pilots recognized over a year ago that an investment in the
company was appropriate," said union spokeswoman Karen Miller. "We have
been attempting to negotiate an overall relief package since that time.
We remain willing to do our share although we recognize that cutting
labor costs alone is not the solution. It must be part of an overall
business plan." 

A Delta spokesman did not return a call seeking comment. 

Some analysts predict Delta may pull off an 11th hour cost-cutting deal
with its union that will avert bankruptcy -- a scenario that American
Airlines saw in the spring of 2003. The Dallas-based airline flew
officials to New York City to file for bankruptcy before calling them
back when unions agreed to a pay cut. 

"I think it's going to more to the wire -- it could be like American,"
said Ray Neidl, an analyst with Blaylock & Partners LP in New York. "I'm
still betting they will stay out of bankruptcy, but if they have to do
it, they'll do it."

 $1B loss likely  

   .  Wall Street analysts predict Delta will lose between $608.9
million and $1.1 billion this year, according to Thomson First Call. 
   .  The airline has lost $3.6 billion since 2001. 


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