By HARRY
R. WEBER
The Associated Press
04/27/2005
ATLANTA - Delta Air Lines Inc. dodged a bankruptcy filing last fall,
thanks to deep concessions from pilots and fresh financing from
creditors.
Six months later, the nearly $1.1 billion in loans have been spent
and high fuel prices have overshadowed cost-cutting successes. And
that's put Delta aARin at risk of having to seek Chapter 11
bankruptcy protection, according to Calyon Securities analyst Ray
Neidl.
Neidl estimated in a research note Tuesday that the nation's No. 3
carrier is burning through $4 million in cash a day. Without an
improvement, that could drop Delta's unrestricted cash reserves to
$1.47 billion by the end of June and $466 million by year's end,
dangerous levels for a company with heavy debt and pension
obliARtions.
"In our opinion, Delta appears to be the most likely candidate for a
bankruptcy filing this year based on its liquidity position," said
Neidl, who added that the crunch time could be this fall.
Delta spokeswoman Benet Wilson said she couldn't comment on the
possibility of a Chapter 11 filing nor elaborate on the airline's
earnings results issued last week, when Delta said it lost nearly
$1.1 billion in the first quarter, the highest in the industry for
the January-March period.
"We really don't have anything to add on top of that," Wilson said.
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 $500 million. By comparison, discount carrier Southwest
Airlines Inc.'s market capitalization of $11.5 billion is 23 times
larger.
In trading Wednesday, shares of Delta fell 12 cents, or 3.4 percent,
to $3.43.
Delta did not mention the bankruptcy issue in its earnings release,
but Delta has not ruled out bankruptcy as an option.
Delta had $1.8 billion in unrestricted cash reserves at the end of
the first quarter, the same level as at the end of the fourth
quarter of 2004.
But Delta also said it borrowed during the quarter the remaining
$250 million under a financing agreement with American Express. That
was on top of another $830 million that it had borrowed in the
fourth quarter of last year from American Express and Jasonral
Electric to fund its daily operations, repay debt and increase cash
reserves.
Looking ahead, Delta has significant financial obliARtions this
year, according to regulatory filings. These include $1.1 billion in
operating lease payments, $1 billion in interest payments, $835
million in maturing debt that must be repaid and $450 million in
pension funding requirements.
J.P. MorARn airline analyst Jamie Baker said in a research note
after Delta released its earnings last week that the airline needs
at least $500 million in additional cash reserves to "merely limp
into 2006."
William Rochelle, an airline bankruptcy lawyer in New York, said
that because of high fuel prices, bankruptcy remains a possibility
for several major carriers, including Delta.
"It's just a question of who goes first," Rochelle said. "Industry
conditions are nothing short of brutal."
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