US Airlines on verge of bankruptcy

[Alpharetta]

http://today.reuters.co.uk/news/newsArticle.aspx?type=businessNews&storyID=2005-09-14T192051Z_01_MAR466936_RTRUKOC_0_UK-AIRLINES-DELTA.xml
NEW YORK (Reuters) - Delta Air Lines Inc. is expected to seek bankruptcy protection later on Wednesday, a source familiar with the situation said, as rival Northwest Airlines Corp. considers doing the same.

Delta would become the third major U.S. airline operating under court protection, dramatising the industry's struggle with soaring oil and competition from low-cost carriers.

The sector's woes went from bad to worse this month as refinery outages caused by Hurricane Katrina sent jet fuel prices spiking. U.S. airlines are expected to post some $10 billion in losses this year.

more at link:
http://today.reuters.co.uk/news/newsArticle.aspx?type=businessNews&storyID=2005-09-14T192051Z_01_MAR466936_RTRUKOC_0_UK-AIRLINES-DELTA.xml

[Alpharetta]

1. I figure Boeing will fall after the airlines do

Once European carriers take over US international travel, then Airbus wipes out Boeing.

[napi21]

2. Delta already did file Chapter 11. See link.

http://www.bizjournals.com/atlanta/stories/2005/09/12/daily17.html?f=et50&hbx=e_du

Delta files for Chapter 11 bankruptcy
Rachel Tobin Ramos
Staff Writer
Delta Air Lines Inc., the nation's third-largest airline, filed for bankruptcy protection after racking up more than $10 billion in losses since 2001 and depleting its cash reserves to anemic levels.

"The action we have taken is a necessary and responsible step to preserve Delta's value for our creditors, customers, employees, business partners and other stakeholders as we address our financial challenges and work to secure our future," said Delta CEO Gerald Grinstein. "Delta is open for business as usual and will continue normal operations throughout the reorganization process. Our customers can be confident that they remain our number one priority and that their travel plans and SkyMiles are secure."

To help support its business during the Chapter 11 proceedings, Atlanta-based Delta (NYSE: DAL) has obtained a commitment for $1.7 billion in debtor-in-possession (DIP) financing from GE Commercial Finance and Morgan Stanley as Co-Lead Arrangers. The commitment includes up to $1.4 billion of financing on an interim basis pending final approval of the full DIP financing at a later date.

In addition to the commitment for the new $1.7 billion DIP financing, which replaces approximately $980 million in secured pre-petition financing from GE Commercial Finance and American Express, Delta has an agreement in principle with American Express to provide the airline with an additional $350 million of secured financing. Altogether, Delta's post-petition financing arrangements now total up to $2.05 billion, an increase of approximately $1.07 billion from the company's pre-petition secured credit facilities.

In the end, Delta couldn't weather the turbulence caused by the terrorist attacks of Sept. 11, 2001, the fuel disruptions of Hurricane Katrina, skyrocket costs of jet fuel, cash-draining pension payments, depressed ticket fares and intense competition from low-cost rivals such as AirTran Airways Inc. and JetBlue Airways Corp.

Delta has $20.5 billion in debt and other obligations. The airline ended the second quarter with about $2 billion in cash reserves. So far this year, Delta has spent nearly $2 billion on fuel while it took in revenue of $7.8 billion, meaning that a whopping 25 percent of Delta's incoming cash is going straight to the fuel pump.

To reduce its red ink over the past several years, Delta has cut 24,000 jobs -- including 1,000 last week from its Cincinnati operations -- outsourced cash-intensive operations like airplane maintenance and delayed delivery of some planes.

To raise cash, Delta sold one of its regional subsidiaries, Atlantic Southeast Airlines Inc. (ASA) to SkyWest Inc. for $425 million. The value of ASA and Comair, another subsidiary, fell from $3 billion when Delta bought them to about $1 billion today.

Delta management made herculean efforts to cut $5 billion in costs out of the carrier's budget and to overhaul 51 percent of its network through the "Operation Clockwork" de-hubbing of the Dallas/Ft. Worth airport and a myriad of other measures such as outsourcing much of the company's aircraft maintenance services and reducing services at Cincinnati, another regional hub.

Delta attempted to reduce costs and increase revenue through a variety of initiatives, including fuel conservation measures, increased fares, debt-for-equity exchanges, implementation of a new revenue management system and surcharges on trans-Atlantic flights.

But record oil prices have weighed heavily on Delta. Every time jet fuel prices go up by a penny, it costs Delta $25 million over the course of a year because the carrier typically uses 2.5 billion gallons annually.

In the second quarter 2005, Delta reported that fuel costs almost eclipsed employee costs -- an almost unheard of flip-flop in an industry where staff costs are usually the single biggest cost factor.

During that quarter, Delta spent $385 million more on fuel than in the same period in 2004, prompting the carrier in mid-July to raise the price cap on domestic fares $100 to a new cap of $600 each way.

Pension obligations have put a further squeeze on the battered balance sheet of the nation's third-largest airline. Grinstein has said repeatedly that the outcome of pending pension reform legislation is going to be a pivotal factor in whether the carrier seeks bankruptcy protection.

A bill wending its way through Congress, sponsored by Sen. Johnny Isakson (R-GA), aims to give airlines even more time make good on their pension shortfalls.

But with Senate confirmation hearings on a proposed U.S. Supreme Court justice and the aftermath of Hurricane Katrina, the bill couldn't be passed in time to kept Delta out of bankruptcy court.

[phantom power]

3. Isn't Northwest considering a bankruptcy filing as well?

Jesus, are ANY major domestic carriers solvent?

[Massacure]

9. They declared bankruptcy.

[bemildred]

4. Good. Screw all of them. Reap what you sow. nt

[BlueCollar]

5. gee thanks

I appreciate your support...

[bemildred]

6. I support you. The airlines can go screw themselves.

Actually, I guess they have.

[BlueCollar]

7. and when they do

I can look for a new career

[bemildred]

8. I've been out of work 3.5 years.

There are things to be said for it, as long you
have enough to eat. I have a feeling there are going
to be a lot of people looking for new careers. The
boobs running the country now make Louis XVI look like
a genius.

[Robert Oak]

10. Anyone know

what would happen if the airlines were nationalized?

(not that MR. privatization corporation would every consider)

but it seems there might be a better way than what is going on now..
they all are crashing and burning...something is fundamentally wrong in this business space although I don't have the background on it to understand.

Anybody got a handle on it all?

[Cloister]

11. The real problem is

The real problem is that the legacy airlines (e.g. United, Delta, American, etc.) are getting their lunch eaten by the likes of Southwest and JetBlue. The business model of the legacy carriers (hub and spoke systems), along with their higher labor costs and massive pension liabilities make them totally uncompetitive with newer discount airlines. They're unable to charge more than those airlines since they've been completely unable to either offer better service, or get customers to pay for better service (e.g. American awhile back started offering more leg room on many flights, and tried to charge more for it. As far as I can tell this was pretty unsuccessful.)

The other problem is, these airlines (and other companies) are going through bankruptcy, but I don't see them radically changing their business model. So I really don't see how they're going to survive in the long run.