[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Monday, 12 September 2005, 20:56 GMT 21:56 UK
Delta is 'close to bankruptcy'
Delta Air Lines planes
Analysts have not been confident about Delta's future
Shares in troubled US carrier Delta Air Lines plunged by 20% as investors feared that the airline might declare bankruptcy as soon as this week.

Analysts believe that the higher fuel prices caused by Hurricane Katrina are likely to prove the final blow.

Delta has lost $10bn since 2001, and recently warned investors that its financial liquidity would "decline substantially" in 2005.

It is the third largest airline in the US, with its main base in Atlanta.

Press reports suggest that the Delta board met in New York on Friday, weeks ahead of its next scheduled meeting, to discuss the mounting fuel bill and growing debt problems.

'Bankruptcy fears'

Other reports suggested the company had lined up $2bn in so-called "debtor-in-possession" financing from GE Financial Services, which would allow it to function while it reorganised its operations.

We still maintain that we see an extremely high risk of bankruptcy
Jim Corridore, Standard & Poor's analyst

Gimme Credit analyst Kimberly Noland said a bankruptcy filing was "almost inevitable" in the wake of Hurricane Katrina.

At the end of trading on Monday, Delta's shares were $0.85, down 22% on the day.

Last month, there was renewed speculation that Delta could file for Chapter 11 protection after it postponed its quarterly results.

Chapter 11 gives a US company time in which to rearrange its finances while continuing to trade.

Analysts believe that legal changes to bankruptcy protection which come into force in October make it imperative for Delta to move quickly.

"It could be as early as this week, but it will definitely be before mid-October," said Fitch Ratings analyst William Warlick.

Debt problems

Delta has sought to cut $5bn from its costs by concessions from its workers and sale of its assets.

It recently raised $425m by selling its low cost subsidiary Atlantic Southeast to a rival, and has been eliminating planes and jobs at its Cincinnati hub.

But the airline still faces cash-flow problems this year - it needs $2.4bn to pay for debt, pensions and aircraft leases, and only has $1.7bn cash-in-hand.

Delta is also saddled with $14 billion in debt.

"Delta's problem is not labour, it's debt," said Michael Boyd, an aviation industry consultant. "Until they can restructure their debt, they are in big trouble."

The carrier has been hurt by falling passenger numbers, increased competition from budget rivals as well as higher fuel costs.

Industry-wide struggles

"We still maintain that we see an extremely high risk of bankruptcy [at Delta] ," said Standard & Poor's analyst Jim Corridore, who also expects it to happen in October.

Under bankruptcy law, Delta's stock would be "completely worthless" if it did file for Chapter 11 protection.

Other US airlines are struggling with bankruptcy and labour disputes.

Northwest is engaged in a bitter dispute with its mechanics over pay cuts.

A number of other US airlines have gone into Chapter 11 protection over the last few years, including United, US and Aloha.

Continental Airlines has also faced financial difficulties.

Europe has long argued that Chapter 11 gives US firms an unfair advantage.

The European Commission says Chapter 11 - which does not apply in Europe - is too lenient, and unfairly allows too many struggling US firms to avoid bankruptcy.


SEE ALSO:
Delta to sell Atlantic for $425m
15 Aug 05 |  Business
Delta dives on bankruptcy fears
09 Aug 05 |  Business
Delta memo fans bankruptcy fears
27 Jul 05 |  Business
Delta cuts fares in survival plan
05 Jan 05 |  Business
Delta pilots vote for pay cuts
12 Nov 04 |  Business
Delta 'reaches $1bn costs deal'
28 Oct 04 |  Business
Delta losses soar in fresh crisis
20 Oct 04 |  Business


RELATED INTERNET LINKS:
The BBC is not responsible for the content of external internet sites


PRODUCTS AND SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific