NEW YORK, 13 September 2005 — Delta Air Lines’ shares fell more than 20 percent yesterday on widespread market speculation that the No. 3 US airline was close to filing for Chapter 11 bankruptcy protection.
The sharp stock decline, which pushes the company’s shares to less than $1, follows a special board of directors meeting on Friday, a source close to board members said.
According to the source, who asked not to be named, the board met in New York weeks ahead of its next scheduled meeting, amid mounting financial pressure from debt and fuel costs. Several analysts said yesterday that they expect the cash-strapped carrier to file for Chapter 11 protection before Oct. 17, when the bankruptcy laws change, making it tougher and more expensive for companies to seek protection. “It could be as early as this week, but it will definitely be before mid-October,” Fitch Ratings analyst William Warlick said in an interview. A Delta spokeswoman declined comment.
Delta shares recovered slightly in afternoon trade, down 16.36 percent, or 18 cents, to 92 cents in midday trading on the New York Stock Exchange. The shares have traded as high as $8.16 in the past year. Standard & Poor’s analyst Jim Corridore also said he expects Delta to file for bankruptcy protection by mid-October.
Gimme Credit analyst Kimberly Noland said a bankruptcy filing was “almost inevitable” in the wake of Hurricane Katrina. The storm, which pounded US Gulf Coast states on Aug. 29, damaged oil refineries and drove jet fuel prices higher.
A source familiar with the situation said General Electric Co. and other creditors are in negotiations with Delta to finalize debtor-in-possession financing, which would fund the airline’s operations while it restructures.
Delta’s assets, which include planes, parts, regional carrier Comair and gates, have a value of about $3 billion. Atlanta-based Delta has lost almost $10 billion since 2001, struggling with rising oil prices and steep competition from low-cost rivals. In a filing with the Securities and Exchange Commission earlier this year, the carrier said it did not have enough cash to meet its needs in 2005.
Last week, Delta sold its regional unit, Atlantic Southeast Airlines, to feeder airline Skywest Inc. for $425 million, but several analysts said the move was “too little, too late,” noting the cash was not enough to save the carrier from a bankruptcy filing.
Last week, Delta announced plans to downsize its Cincinnati, Ohio hub by eliminating 1,000 jobs, selling 11 wide-body jets and cutting capacity at the airline’s No. 2 hub by 26 percent. Delta Chief Executive Gerald Grinstein has said that cost cuts of $5 billion through 2006 would not alone be enough to stave off bankruptcy.
Overall 2005 cash needs total $2.4 billion, not including operating losses. Delta had $1.7 billion in cash, cash equivalents and short-term interest at the end of June, but it estimated that payments for leases, interest capital expenses and pension obligations would total at least $2 billion through December.
In 2005, Delta faces $470 million in maturing debt, $550 million in interest payments, $460 million due for operating leases and $135 million in pension payments.
