Delta loses $1.97 billion, despite 13% revenue rise

Airline blames write-offs, higher fuel, pension costs

July 20, 2004|By BLOOMBERG NEWS

ATLANTA - Delta Air Lines Inc., which is trying to avoid a bankruptcy filing, had a second-quarter net loss of $1.97 billion because of costs for pilot pensions, fuel and writing off tax benefits.

The per-share loss was $15.79, the Atlanta carrier said. Net income was $184 million in the second quarter last year, or $1.40, including U.S. aid for security costs and gains from asset sales.

Revenue rose 13 percent in the latest quarter, to $3.96 billion.

Delta said in May that it might have to seek bankruptcy protection unless it can cut costs, especially for pilots.

The third-largest U.S. airline has posted losses for 13 of the past 14 quarters, as air travel slumped after the 2001 terrorist attacks and fuel prices rose this year. Delta's quarterly fuel costs rose 54 percent, as operating expenses climbed 27 percent to $4.2 billion.

Labor costs "are vexing for this industry" and "the oil situation has just become brutal," said Robert G. Morris, chief investment officer at Lord, Abbett & Co. LLC, which owned 10.3 million shares as of March and was Delta's second-largest shareholder.

Lord, Abbett sold some Delta shares in the past several months and now owns "significantly less," Morris said, declining to give a figure.

The quarterly loss was Delta's largest since 1978 and probably its biggest ever, according to BACK Aviation Solutions.

In a conference call with analysts, Delta chief executive Gerald Grinstein reiterated that executives would give the board a proposal in late August for cutting costs and revamping some operations.

"The hole we must fill is considerably deeper than it was a year ago and it grows deeper every day," said Chief Financial Officer Michael J. Palumbo during the call. "Simply reducing pilot costs will not completely solve the problem."

Delta shares rose 44 cents, or 8 percent, to close at $5.94 yesterday on the New York Stock Exchange. They have declined 48 percent this year.

Jamie Baker, an analyst at J.P. Morgan Chase & Co., said in a report that the airline's unit revenue and unit costs, excluding its commuter subsidiaries, were better than he expected. Unit costs are measured per seat for each mile flown.

Some investors might also be relieved that the company said its remaining pension obligations for this year are a manageable $50 million, said Susan M. Donofrio, an analyst at Fulcrum Global Partners in New York.

Delta said last week that it had noncash expenses in the second quarter of $1.53 billion for tax credits it may not be able to use and $117 million for pensions because more pilots retired than had been expected.

The airline's fuel costs rose to $669 million, as it paid more per gallon and usage increased. Delta said its fuel expense this year will increase about $680 million from 2003, mainly because of an increase in prices. Jet-fuel spot prices in New York harbor have risen 28 percent this year to $1.191 a gallon.

Labor costs fell less than 1 percent to $1.58 billion. That doesn't include the pilot-pension expense.

The company is the first of the five largest U.S. carriers to report second-quarter results. AMR Corp.'s American Airlines and UAL Corp.'s United, its larger rivals, also are expected to report losses, as are No. 4 Northwest Airlines Corp. and Continental Airlines Inc., the fifth biggest carrier.

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