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US Delta, Northwest file for bankruptcy
(Reuters)
Updated: 2005-09-15 07:14
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 problems 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 attacks of September 11, 2001, 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.
LABOR COSTS
Northwest's woes are focused on high labor costs, which it is trying to slash by $1.1 billion.
Analysts said Northwest, which hired replacement workers to substitute for mechanics and cleaners who struck last month, could be using bankruptcy to get concessions that unions have been reluctant to grant at the bargaining table.
"Northwest must significantly lower its costs to compete with other carriers. Many of these are legacy carriers that have already used the bankruptcy process," said Doug Steenland, Northwest president and chief executive. "We had developed a plan to restructure Northwest outside of Chapter 11 and have been implementing that plan ...
"Unfortunately, in addition to an uncompetitive cost structure, our efforts have been overtaken by skyrocketing fuel costs."
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.
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