Delta shares fall on loss warning

If the airline's woes extend to a bankruptcy filing, a hangar lease at Tampa International Airport could be at risk.

Associated Press
Published March 11, 2005

ATLANTA - Delta Air Lines Inc. shares plunged Thursday after it warned it will post another substantial loss this year despite a recent round of pay cuts and other cost reductions. It also said a bankruptcy filing remains a possibility.

The disclosure in a regulatory filing fueled talk that the nation's third-largest carrier may need to sell one or more of its feeder carriers.

Delta shares tumbled 56 cents, or 11.5 percent, to close at $4.33. That's the largest percent drop since its shares fell nearly 19 percent on Oct. 15, when Delta was previously on the verge of bankruptcy. The stock has traded in a 52-week range of $2.75 to $9.17.

In its filing, Delta said its cash reserves would be much lower at the end of 2005 than last year unless it can sell assets or raise money in other ways. Its ability to borrow more money, however, is limited because it has pledged most of its assets as collateral on previous loans.

Delta was able to avoid bankruptcy last year after its pilots agreed to $1-billion in concessions, including deep wage cuts. But its financial condition has yet to stabilize.

The company reported a loss of $5.2-billion for 2004, the highest by a U.S. airline in a single year. It didn't say in Thursday's filing how much it expects to lose in 2005.

Delta is trying to eliminate more than $5-billion in costs by the end of 2006.

In September, the company said it would cut up to 7,000 jobs in 18 months - on top of 16,000 other cuts since 2001. The company has not said whether additional job cuts will be needed.

A bankruptcy filing could have implications for Tampa International Airport, where the airline leases a maintenance hangar.

A bankruptcy filing is the one way the airline could break the lease and walk away from the facility. Such action would follow a similar move by US Airways in 2002. The US Airways hangar remains empty as bankruptcy trustees try to find a new occupant.

Louis Miller, executive director of the Hillsborough County Aviation Authority, said that as of Thursday afternoon, employees at the Delta hangar had heard nothing about a bankruptcy or a hangar closing. But things can happen quickly in the airline industry.

In June 2002, the chief executive of US Airways visited Tampa and told employees he would not close the TIA hangar. In November, he shut it down.

"I'd be very surprised if Delta walked away from the hangar here," Miller said. "After they shut down (the hub operation at) Dallas-Fort Worth earlier this year, they enlarged the staff at the hangar here by a third, and they're busy all the time."

Philip Baggaley, an airline analyst with Standard & Poor's in New York, said he thinks Delta has nine to 12 months of breathing room before bankruptcy becomes a near-term concern.

"The question is whether they can trim their losses and therefore cash outflow fast enough to avoid a liquidity crunch later this year," Baggaley said.

While the company did not specifically say that it plans to sell subsidiaries Comair Inc. and Atlantic Southeast Airlines, which handle flight connections for Delta, the warnings in the Securities and Exchange Commission filing suggest it may have to - and quickly, analysts say.

"I think it is clearly one of the last options left for them in terms of raising cash," said Bill Warlick, an airline analyst with Fitch Ratings in Chicago.

This week, speculation over Delta shedding the feeder carriers increased when the chief financial officer of SkyWest Inc. said at an investor conference in Florida that his company was discussing with Delta the possibility of it selling Comair and ASA.

"We know that they have this interest," Bradford Rich, the CFO, said, according to an audio recording of the conference.

Delta has declined to comment on Rich's statements, and on Thursday refused to discuss the language in the SEC filing or answer any questions.

The Atlanta company said in its annual report filed with the SEC that it doesn't think its cash flows from operations will be sufficient to meet all of its money needs. Delta said it would have to tap available cash and the final $250-million it borrowed late last year from American Express Co.

The company - which has $3.4-billion in obligations in 2005 related to leases, interest on debt, debt maturities and funding of employee pensions - said its fate is uncertain, adding that it will be forced to file for bankruptcy if it can't further reduce expenses and continues to suffer losses.

"A restructuring under Chapter 11 of the U.S. Bankruptcy Code may be particularly difficult because we pledged substantially all of our remaining unencumbered collateral in connection with transactions we completed in the December 2004 quarter as part of our out-of-court restructuring," Delta said in the filing.

Times staff writer Jean Heller contributed to this report.