- The Washington Times - Wednesday, September 14, 2005

Delta Air Lines Inc. and Northwest Airlines Corp. yesterday filed for bankruptcy in an unprecedented day for the struggling airline industry.

Delta, the nation’s third-largest airline, filed for Chapter 11 bankruptcy protection from creditors after the stock market closed yesterday, saying record-high fuel prices have undermined efforts to cut costs.

Northwest, the fourth-largest airline, filed for Chapter 11 bankruptcy protection about 30 minutes later, citing high labor costs.

Both airlines threatened for months that they would seek bankruptcy protection, but the back-to-back filings emphasized the difficulty the traditional carriers are having competing with younger competitors like Southwest Airlines and JetBlue Airways.

Both Delta, based in Atlanta, and Northwest, based in Eagan, Minn., promised their operations won’t be disrupted.

The filings mean four major airlines are in bankruptcy. UAL’s United Airlines filed in 2002 and US Airways Group Inc., based in Crystal City, filed one year ago. But US Airways could win court approval today for its reorganization plan and proposed purchase by America West Airlines and emerge by the end of the month.

“The fact that [Delta and Northwest] filed back to back is dramatic, but the fact that you have half of the industry’s capacity in bankruptcy says something,” said John Heimlich, chief economist for the Air Transport Association, an industry group representing the nation’s largest airlines.

At least one more airline could fail. Flyi Inc., which operates low-cost carrier Independence Air out of Washington Dulles International Airport, is widely expected to file for bankruptcy.

“I see consolidation or contraction for the big six airlines as well as the low-cost carriers,” Mr. Heimlich said.

Delta listed its total debt at $28.3 billion and assets at $21.6 billion, according to the filing in U.S. Bankruptcy Court for the Southern District of New York. Song, Delta’s low-cost carrier, was included in the bankruptcy filing.

Delta’s bankruptcy is the ninth-largest in U.S. history. WorldCom Inc., which filed in 2002, was the largest with $103.91 billion in debt.

“Delta’s financial problems are severe, but by no means insurmountable,” Delta Chief Executive Gerald Grinstein said.

Northwest listed debts of $17.9 billion and assets of $14.4 billion and also filed in U.S. Bankruptcy Court for the Southern District of New York.

Northwest filed yesterday to avoid a $65 million pension payment that would have come due today.

Delta filed yesterday to preserve its cash and said it won’t make an upcoming payment to a defined benefit plan.

“Missing contributions does not mean that our [pension] plans stop paying monthly retirement benefits or that we have initiated the process to terminate the plans,” Mr. Grinstein said.

Northwest said its bankruptcy filing is unrelated to the strike by its 4,400 mechanics.

Both airlines said they have money to fund operations through bankruptcy.

Delta said it has obtained a commitment for $1.7 billion in financing from General Electric Commercial Finance and Morgan Stanley. Separately, American Express has promised an additional $350 million in secured financing.

Northwest has $1.5 billion in cash. It will save money by shedding some planes in its fleet and eliminating some routes to “operate a somewhat smaller airline,” Chief Executive Douglas Steenland said.

It is not clear how many Northwest workers will be cast off, but the airline hopes to avoid jettisoning pensions like US Airways has done, he said.

Northwest tried for months to cut labor costs and wants to renegotiate union contracts to save $1.4 billion annually. Bankruptcy will allow Northwest to lower its labor costs and compete with low-cost carriers, Mr. Steenland said.

Northwest this week began hiring replacement mechanics.

Delta won $1 billion in concessions last year from its pilots.

Mr. Steenland said Northwest had a plan to restructure without filing for bankruptcy, but soaring fuel costs forced the company into court.

Northwest expects its fuel bill for 2005 will reach $3.3 billion, compared with $2.2 billion in 2004 and $1.6 billion in 2003.

Mr. Grinstein said Delta will reduce its fleet of 869 planes and rely on smaller planes that use less fuel. Delta has lost almost $10 billion since early 2001.

During the six-month period that ended June 30, Delta’s fuel costs increased 56 percent, or $695 million, compared with the same period in 2004.

The airline industry yesterday asked Congress for a one-year reprieve from federal jet fuel taxes. Suspension of the 4.3-cents-a-gallon federal tax would save the industry $600 million.


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