RockBottom

Analyst: 4 Ways Delta Can Avoid 11

Provided By: The Atlanta Business Chronicle
Last Modified: 8/22/2005 12:03:40 PM

Delta Air Lines Inc. management has not given up on trying to avoid bankruptcy and is conducting last minute negotiations to avoid it, according to Calyon Securities USA Inc. analyst Ray Neidl.

However, in his report about Delta called "The Grim Reaper Approaches," Neidl noted historically high oil prices have made Delta's battle to avoid bankruptcy more difficult, if not impossible. This difficulty remains despite the airline's plans to add liquidity by selling its wholly owned regional airline subsidiary Atlantic Southeast Airlines Inc. (ASA) to SkyWest Inc. for $425 million in cash. Late Aug. 19, Delta told its pilots its cash reserves have fallen to a level low enough that it may have to ask for more concessions from the Air Line Pilots Association International.

Neidl has identified four moves Atlanta-based Delta (NYSE: DAL) must make if it is to avoid Chapter 11.

First, Delta must find a party to finance the $750 million required cash collateral for credit card receivables.

Second, Congress must enact pension relief when it reconvenes in September. Delta is due to pay $150 million before the end of 2005.

Third, creditors will have to give concessions and extend debt rollovers since Delta has about $500 million in debt maturities before the end of 2005.

Fourth, Delta will need to negotiate more employee concessions.

Neidl said these steps must be completed in the next few weeks or the company will seek bankruptcy.

"We believe that the basic franchise remains strong with a committed management team. However, the balance sheet is broken and a Chapter 11 filing may be the only way to remedy it," he said.

At $1.50 a share, the stock is already trading at bankruptcy levels and will probably continue to trade in that area in the event of and after a Chapter 11 filing. Therefore, Calyon is maintaining its neutral rating. Calyon believes the stock to be worthless if the company does file for bankruptcy.

Delta has lost $10 billion since 2001. Delta has about $21 billion in lease-adjusted debt, and defined benefit pension plans are underfunded by more than $5 billion. Unrestricted cash totaled $1.7 billion at the end of the second quarter, but is expected to decline substantially over the remainder of the year.

In addition to cash that will be required for a credit card processing agreement, Delta has $420 million of debt maturities (mostly in the fourth quarter) and $135 million pension funding requirements over the remainder of 2005 (an amount that could be increased by high levels of early retirements by pilots).

Capital expenditures for the rest of the year are about $270 million, $160 million of which is covered by committed financing for regional jets or will be recovered through committed sale of an aircraft.

PILOTGUY

Thanks for the article RockBottom. I had not seen that one.
Maybe Delta could follow American a little better since they turned a profit this last quarter while paying their pilots only slightly less money. Maybe Delta management can be trimmed to eliminate some of the people who are doing the same job. Maybe bonuses should be eliminated until the company is profitable. Maybe next time, management will not skim of the top of the pension fund money to make their profits look better so they can get larger bonuses. Maybe management can be run with a skeleton crew like they have mad the cabin crews do.
Yes, I am a little hostile towards management, but with my father, mother and myself, there is over 71 years of airline experience and all problems I have seen almost always stem from management.