Delta to get $600 million in financing

American Express deal includes prepayment for frequent-flier miles

October 26, 2004|By BLOOMBERG NEWS

ATLANTA - Delta Air Lines Inc., struggling to avoid a bankruptcy filing, said yesterday that American Express Co. has agreed to provide as much as $600 million in financing, including $500 million to prepay for the airline's frequent-flier points.

American Express, which extended its credit card partnership with Delta, also will provide a loan of as much as $100 million in a credit agreement the airline is seeking from lenders, Delta said in a statement.

Shares of Delta, the third-largest U.S. airline, rose as much as 24 percent on the news before falling back. For the day, the shares rose 54 cents, or 17 percent, to close at $3.78 on the New York Stock Exchange. The stock has dropped 68 percent this year.

The American Express financing would help Delta raise $800 million by 2005, though the company said in a statement that it hadn't reached agreement with other lenders. Delta said last week that it will seek bankruptcy protection unless pilots provide $1 billion in concessions.

Labor negotiations were taking place yesterday in Washington, said union spokeswoman Karen Miller.

"As our September quarter 2004 losses demonstrate, time is now very critical for Delta," Chief Executive Officer Gerald Grinstein said in the company's statement.

Some conditions must be met before Delta receives the financing, said American Express spokesman Michael O'Neill. Delta said it planned to provide more details in a filing with the Securities and Exchange Commission.

The airline said last week that it posted a $646 million net loss for the third quarter from high costs of jet fuel, a drop in U.S. airfares and flight disruptions caused by Florida hurricanes. The airline is seeking to cut $5 billion in annual costs by 2006 and said Oct. 14 that it probably will trim about $2.3 billion of the expenses by the end of this year.

The proposed savings for this year exclude the concessions the company is seeking from its 7,500 pilots, who are represented by the Delta Air Line Pilots Association. The union and the company negotiated over the weekend in Florida.

The American Express prepayment for Delta's SkyMiles, the frequent-flier points that help customers earn free flights, will be made in two $250 million installments for three years. The prepayment and the loan will be secured by a pool of Delta assets, O'Neill said.

American Express buys Delta's SkyMiles frequent-flier points and awards them to card users for their purchases, giving customers the option to get the Delta points and use them for free flights.

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