- Feds ask judge to impose $6.5 million punishment for Cape surgeon (12/7/17)9
- Harbor Freight Tools plans to move ahead with Cape Girardeau store (12/5/17)2
- Former Wimpy's Drive-In owner Freeman Lewis dies (12/9/17)2
- Business Notebook: Yule Log Cabin gets home feel honestly (12/4/17)
- Makeover at the movies: Transformation complete inside Cape theater (12/8/17)4
- Sugarfire Cape barbecue restaurant to open June 2018 (12/7/17)
- Fire displaces family of seven (12/5/17)1
- Fruitland Army veteran spends weeks helping in ravaged Puerto Rico (12/5/17)2
- Pedestrian struck on Broadway (12/11/17)4
- Jury convicts Scott City man who confessed to murder; girlfriend's testimony corroborates confession (12/9/17)
Delta and Northwest file for Chapter 11 bankruptcy
Delta Air Lines Inc. and Northwest Airlines Corp., hobbled by soaring fuel costs and heavy debt and pension obligations, filed for bankruptcy protection Wednesday, becoming the third and fourth major carriers to enter Chapter 11 since the 2001 terrorist attacks.
The dual filings in U.S. Bankruptcy Court in New York bring into focus the magnitude of the plight of the nation's big airlines, which have lost more than $30 billion in four years even as they slashed thousands of jobs and raised questions about the viability of their employee pension plans.
A spike in fuel prices after Hurricane Katrina was the final blow for both. By joining the parents of United Airlines and US Airways in bankruptcy, the four major carriers represent more than 40 percent of all available seat miles in the United States, according to analysts. "We are reading the first page in a thriller that will end either in resurrection or the death and burial of an entire industry as we know it today," said William Rochelle, an airline bankruptcy lawyer in New York.
Delta said it plans to reduce its fleet size and chief executive Gerald Grinstein said it's likely more job cuts will be needed on top of the 24,000 job cuts the Atlanta-based carrier has announced since 2001. "There is no painless way out of this," Grinstein said.
Northwest CEO Doug Steenland said his Eagan, Minn.-based airline also would shrink in bankruptcy, with layoffs expected before the end of the year and fewer flights.
Delta and Northwest said passengers were not expected to see any immediate effects from the filing.
Delta also promised to honor all tickets and sent a letter to frequent-flier customers seeking to reassure them. Northwest said it would continue to operate normally its frequent flyer and WorldPerks Visa programs.
Chapter 11 protection will allow the airlines to pursue cuts in wages, restructuring of debt as well as make changes to pension and health benefits for workers and retirees. Not yet clear is whether they will seek to turn over their pension plans to the federal government, as United's parent won permission to do so from a judge in Chicago.
Delta was expected to continue its normal schedule. However, as the company makes its way through bankruptcy court, some changes to Delta's operations could occur, analysts say.
Delta, the nation's third-largest carrier, has lost nearly $10 billion over the last four years. In September 2004, Delta announced it would shed its Dallas hub as part of a sweeping turnaround plan aimed at saving the airline. It has since scaled back its operations in Dallas.
Northwest, the country's fourth-largest airline, had been in better financial shape than some of its competitors, with an extensive Asian network and cargo business both thought to be profitable. But that changed after 9-11, the rise in fuel prices and the epidemic of SARS, a virus that spread through several Asian countries, which cut into a core Northwest business.
The recession and slow economic recovery in the early part of the decade also eroded airlines' business, and the rise of low-cost carriers such as JetBlue Airways Corp. further stymied the big carriers' rebound.
Delta said it is arranging roughly $2 billion in post-petition financing and already received a commitment for $1.7 billion in financing.
Delta and Northwest follow into bankruptcy UAL Corp., the Elk Grove Village, Ill.-based parent of United Airlines, and Arlington, Va.-based US Airways Group, Inc., which is undergoing reorganization for the second time in three years. Fort Worth, Texas-based AMR Corp., the parent of American Airlines, the nation's biggest carrier, teetered on the verge of bankruptcy before winning deep concessions from its employees. The other so-called legacy carrier, among those with a large presence in multiple regions prior to deregulation in 1978, is Houston-based Continental Airlines Inc.
Continental and American are in no immediate danger of bankruptcy. Continental had a big cost advantage over other traditional airlines after it slashed expenses during two bankruptcy reorganizations in the 1990s. American may be the strongest financially of the traditional airlines, thanks to $1.8 billion in annual labor concessions it won in 2003. Its parent company actually turned a profit in the second quarter.
But even the stronger carriers are finding business harder with fuel prices soaring, carrying crude oil futures past $70 a barrel earlier this month.
Some smaller carriers, including Honolulu-based Hawaiian Airlines and Indianapolis-based ATA Airlines Inc., also have filed for bankruptcy in recent years. Hawaiian emerged from bankruptcy in June.
Before its filing, Northwest for months had sought more than $1.1 billion in union concessions, warning that bankruptcy was a possibility, but only pilots agreed. Mechanics went on strike in August rather than accept deep layoffs and pay cuts, and though the airline stayed aloft with replacements, it switched to a reduced fall schedule early and saw more delays and cancellations than usual.
Northwest also faces $2.5 billion in payments due to its underfunded pensions in the next couple of years, and has so far unsuccessfully pursued a change to federal law that would allow it to spread the payments over a longer term. Likewise, Delta faces billions in pension payments over the next three years, and it said Wednesday it does not plan to make its next funding contribution to its defined-benefit pension plan.
Both airlines are seeking pension reform in Congress to allow them to spread out their payments over more years.
By filing for Chapter 11 now, Northwest and Delta beat an Oct. 17 deadline, when the bankruptcy laws become more restrictive and makes it harder for companies to cancel their debts.
The new bankruptcy laws also will make it harder to pay bonuses to managers to keep them at the company, and will generally force companies to either exit bankruptcy or liquidate faster.
Since Delta first came to the edge of bankruptcy last year, its pilot ranks have thinned as some have retired early. Retiring Delta pilots can elect to receive half their pension benefits in a lump sum and the other half as an annuity later -- a move that could ensure they received at least some payout even if Delta later filed for bankruptcy. It's not clear how the lump sum benefit would be affected in bankruptcy, but bankruptcy judges have great leeway in approving changes to company operations.
Though Delta is based in Georgia and Northwest in Minnesota, they decided to file for bankruptcy in New York.
Bankruptcy experts say some major companies based elsewhere file in New York because that is where much of the investment community is located and because bankruptcy judges there are perceived to be predictable in how they handle major cases. Mississippi-based WorldCom Inc. filed for Chapter 11 in New York in 2002.
On the Net:
Delta Air Lines Inc. http://www.delta.com