Delta expects huge third-quarter loss, raising likelihood it will file for Chapter 11

October 16, 2004|By BLOOMBERG NEWS

Delta Air Lines Inc., the third-largest U.S. carrier, predicted yesterday that its loss would widen to as much as $675 million in the third quarter, pushing the airline closer to a possible bankruptcy filing.

Cash reserves were $1.45 billion Sept. 30, the company said in a filing, increasing pressure on the Atlanta airline to agree with pilots on $1 billion in wage and benefit concessions. Delta shares had climbed almost 30 percent this week as the airline and its pilots union discussed an agreement, and fell 79 cents, or nearly 19 percent, to close at $3.42.

"We view Chapter 11 as virtually inevitable," Jamie Baker, a J.P. Morgan analyst, said in a report. Delta hasn't done enough to reduce debt, raising to 85 percent from 70 percent the chance it will file bankruptcy by year's end, he said.

Delta is negotiating concessions from creditors and employees and reducing jobs and pay to trim yearly costs $5 billion by 2006.

The airline expects its net loss in the third quarter to be $625 million to $675 million, or $4.99 to $5.39 per share, the company said in a Securities and Exchange Commission filing. Delta had a loss of $164 million, or $1.36, in the third quarter last year. The airline reports third quarter results Wednesday.

Unrestricted cash fell 28 percent from $2 billion on June 30.

Pressure on Delta to file for Chapter 11 protection will increase now that the carrier's unrestricted cash declined, and a filing by the end of this month "is a real possibility," said Ray Neidl, an analyst at Calyon Securities USA Inc.

The airline needs a minimum cash balance of $1.5 billion to avoid seeking protection from creditors in bankruptcy court, said analysts such as James Higgins of Credit Suisse First Boston in New York and William Greene of Morgan Stanley in New York.

"These results are truly bad," Greene said in a report to investors.

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