As Delta Air Lines seeks to avoid a bankruptcy filing that looks increasingly inevitable, it has arranged the sale of its Atlantic Southwest Airlines (ASA) regional unit to fellow feeder airline SkyWest Airlines in a deal that will earn it $350 million in cash by October.
The deal to sell its Atlanta-based feeder is structured to give protection to Utah-based SkyWest if Delta does file for bankruptcy protection, as despite the deal, Philip Baggaley, a Standard & Poor’s analyst, forecasts that the airline’s “already slim chances of avoiding bankruptcy are dwindling rapidly”.
US bankruptcy law gives an airline the right to drop or reject contracts after it files for reorganisation, but this sale gives Delta another $95 million in cash if it keeps its feeder contract with SkyWest in bankruptcy; a further protection allows SkyWest to keep an additional $30 million in aircraft deposits if Delta rejects the contract.
Analysts had expected for months the SkyWest purchase of ASA, one of the two Delta Connection subsidiaries. JP Morgan’s Jamie Baker says that with Delta having valued ASA at nearly $700 million when it bought it in 1999 “if this is the best Delta can do, bankruptcy may be inevitable”. Delta was silent on the possibility that it would sell its other regional unit, Comair, which it bought in 2000 for $1.8 billion.
The takeover of ASA nearly doubles the size of SkyWest, which already flies for Delta at its Salt Lake City hub. Jerry Atkin, SkyWest chief executive says: “We haven’t lost our minds by completing this transaction with Delta. We have structured this so it works well for us and Delta, either in bankruptcy or out.”
Atkin says that ASA would remain headquartered at its Atlanta hub and that he plans few, if any, operational changes. Both Skywest and ASA depend heavily on Bombardier CRJs. In addition to buying ASA, Delta or Comair would lease 40 additional aircraft to SkyWest, but the agreement will not impact Comair’s existing fleet of 171 aircraft, or the three aircraft currently on order.
DAVID FIELD/WASHINGTON DC
Source: Flight International
