Delta Air, Northwest file for Chapter 11
Wednesday September 14, 5:15 pm ET
By Christian Plumb and Jui Chakravorty
NEW YORK (Reuters) - Delta Air Lines Inc. (NYSE😀AL - News) and Northwest Airlines Corp.(NasdaqNM:NWAC - News) filed for Chapter 11 bankruptcy protection on Wednesday, according to court documents.
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Delta, the No. 3 U.S. airline, which earlier this year said it did not have enough cash to meet its liquidity needs in 2005, filed for protection in U.S. bankruptcy court in the Southern District of New York.
"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," said Delta Chief Executive Gerald Grinstein in a release. "Delta is open for business as usual and will continue normal operations throughout the reorganization process."
Minnesota-based Northwest, whose mechanics have been on strike since August 20, filed for Chapter 11 protection in the U.S. Bankruptcy court in Manhattan.
The two filings doubled to four the number of major U.S. airlines operating under court protection, dramatizing 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.
Atlanta-based Delta's woes were compounded by a crushing debt load of more than $20 billion and one of the industry's biggest underfunded pension burdens.
Founded in 1928, Delta became a top international player by taking over many routes from defunct Pan Am in 1991. It has faced an uphill battle to recovery after getting hammered by the September 11, 2001, attacks and the slowdown in flying that followed.
"Delta is overleveraged and they weren't going to stay out of bankruptcy, no way," said Ray Neidl, an analyst at Calyon Securities.
Both airlines would likely use bankruptcy to slash labor and pension costs, following in the footsteps of No. 2 U.S. carrier United Airlines, the main unit of UAL Corp.
(OTC BB:UALAQ.OB - News).
The bankruptcies could put added pressure on other carriers including AMR Corp. (NYSE:AMR - News), parent of American Airlines, by putting them at a competitive disadvantage as their bankrupt rivals shed costs and ditch pensions, analysts said.
On the other hand, other airlines would benefit if Delta and others cut back on domestic routes, getting rid of overcapacity which has made the U.S. airline sector the most troubled worldwide.
Credit rating firm Standard & Poor's said on Wednesday that Northwest's failure to make $42 million in payments due on Tuesday made a bankruptcy filing likely.
Adding to pressure on the Eagan, Minnesota-based carrier, Northwest would face a lien against its assets if it missed a $65 million pension payment due on Thursday, S&P said -- unless the airline sought court protection.
United and US Airways Group Inc. (OTC BB:UAIRQ.OB - News) are both already operating in bankruptcy, though both are hoping to emerge soon.
Additional bankruptcy filings could pave the way for additional mergers and acquisitions in the sector, Merrill Lynch & Co. analyst Michael Linenberg said in a report.
On Wednesday, Delta shares closed down 7 cents, or 9 percent, at 71 cents on the New York Stock Exchange. Northwest shares, which were hammered Tuesday on expectation of a bankruptcy filing, closed up 30 cents, or 19.1 percent, to $1.87 in busy trading on Nasdaq.
Northwest's stock has plunged 86 percent so far this year, while Delta has lost 90 percent of its value.
On the debt markets, Northwest's 10 percent notes due in 2009 rose to 26 cents on the dollar, about 2-1/2 cents higher on the day, after tumbling more than 9 cents on Tuesday, according to MarketAxess.
Delta's 8.3 percent bonds due 2029 rose to 16 cents on the dollar, about 0.5 cent higher on the day, according to MarketAxess. They are still about 3/4-cent lower month-to-date.
(Additional reporting by Dena Aubin)
