The news that Delta Air Lines had lined up more than $1 billion in financing during December significantly increases the chances of the carrier avoiding the shelter of bankruptcy court protection.
Shortly after Delta's pilots union gave formal approval to the wage cuts it needed to stay out of court, General Electric agreed to lend the Atlanta-based carrier up to $630 million, and American Express committed up to $600 million in deals that enable Delta to avoid an immediate liquidity crisis. That is $230 million more than the firms tentatively agreed to lend Delta before the pilot vote on paycuts.
The loans force Delta to meet continuing cost-reduction targets, and the airline will still cut 6,900 jobs this year. Delta remains burdened with more than $21 billion in debt. The steps put Delta about half way through its overall restructuring effort, which the airline insists is on track despite difficulties with a $680 million debt-for-equity exchange that fell $73 million short.
Some analysts think Delta is past the worst, although UBS Securities analyst Robert Ashcroft predicts that Delta will continue to be hobbled by extra capacity, higher pension costs, and other expenses that it could have shed in bankruptcy. "As hard as management worked this autumn to stave off Chapter 11, it must work harder still this winter and spring to successfully restructure the company in the breathing space it has won," he says.
Its hub restructuring, taking place during January, is crucial, and the airline will have to avoid negative publicity that would accompany any major missteps, especially in its home town of Atlanta. An expansion of its low-cost Song unit by one third, to be accompanied by a new in-flight entertainment system, will bring Delta into more cross-country markets from Atlanta, officials have said.
Source: Airline Business
