- The Washington Times - Thursday, September 15, 2005


Their bankruptcy filings behind them, Delta and Northwest began a lengthy and costly road to recovery yesterday that will likely include cutting employee rolls, pensions and routes. In the end, if they survive, the nation’s third- and fourth-largest airlines will be smaller and may look more like the discount rivals that helped send them into bankruptcy.

That perspective by analysts, bankruptcy experts and academics was underscored yesterday as Atlanta-based Delta Air Lines Inc. and Eagan, Minn.-based Northwest Airlines Corp. sought to reject certain aircraft leases. In Delta’s case, it also asked a New York bankruptcy judge to allow it to abandon some properties and prevent utilities from turning off its power.

“What are they going to look like? They are going to look like Southwest or JetBlue,” said Manchester, N.H., bankruptcy and restructuring expert Dan Sklar, referring to the low-cost carriers.

David LeMay, a lawyer who worked on Continental’s bankruptcy in the early 1990s, said that airline raised cash in bankruptcy by selling a valuable trans-Pacific route and a terminal it was building at LaGuardia Airport in New York.

“I’m sure that both Delta and Northwest will be looking very, very hard at what is absolutely essential to keep and what can be sold,” he said.

While bankruptcy gives the airlines more leverage, it doesn’t address one of the companies’ fundamental problems — not enough revenue.

“There’s no motion you can make in bankruptcy court that says, ‘Please put $20 million in the checking account this week,’” Mr. LeMay said. “People have this impression that in bankruptcy you can do whatever you please, but that’s really not true at all.”

In Northwest’s case, the airline will likely press its pilots to change rules that limit its regional passenger service, said airline analyst Ray Neidl at Calyon Securities in New York. Regional flying is important to both carriers. But Northwest, with its large Midwest presence, already operates more flights at small airports than any other carrier. Shifting more of those flights to its regional partners will help Northwest get profitable again, Mr. Neidl said.

Delta will change its system even more than Northwest, Mr. Neidl said. “They might try to become more international-oriented. Domestically, I’m thinking they will shrink,” he said.

Delta also will likely look for savings at its in-house discount carrier, Song. Mr. Neidl said Delta has claimed that Song is already cheap to operate, but others haven’t been so sure.

“If it’s not cheap now, I believe Delta will make it cheap,” he said.

To do that, job, pay and benefit cuts are almost a certainty. The chiefs of both companies said after their filings Wednesday that more job cuts are expected. Employee pensions also are in danger.

Delta said it does not plan to make the next scheduled contribution to its pension fund. Northwest had a $65 million pension payment due yesterday, but said in a regulatory filing Tuesday that a claim against its assets for nonpayment could be avoided if it filed for bankruptcy first. Some analysts expect both airlines to terminate their pensions and dump the responsibility on the federal government, as UAL Corp.’s United Airlines has done in its bankruptcy case. Northwest Chief Executive Doug Steenland has said he wants to avoid that.

Delta and Northwest have been seeking pension-law changes that would let them spread out payments to their pensions, but the relief they may ultimately get may not be enough to save the plans.

The head of the Pension Benefit Guaranty Corp. said yesterday that Delta and Northwest have a responsibility to meet their pension funding requirements. The federal agency said that Delta’s pension is underfunded by $10.6 billion and Northwest’s by $5.7 billion.

Shares of Delta rose 4 cents, or 5.6 percent, to close at 75 cents yesterday on the New York Stock Exchange, while Northwest shares fell 99 cents, or 53 percent, to close at 88 cents on the Nasdaq Stock Market.

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