Bankruptcy looms over Delta Air
|
|
Delta’s cash flow is not enough to meet its needs for the rest of the year. The airline has $1.7 billion in cash, but needs $2 billion to pay its bills by the end of 2005. The airline has confirmed it is selling its Atlantic Southeast Airlines (ASA) subsidiary for $425 million to Skywest Inc. and will use the proceeds to pay off some of its debt. In a filing to the U.S. Securities and Exchange Commission in respect to the sale of ASA, Delta said that despite financing deals, it could be forced into bankruptcy. However, Delta shares were up in Tuesday’s trade in New York on the back of the sale, although they have plummeted over 50 percent so far this month alone. “They are throwing off assets to try and keep themselves going a little bit longer,” Justin Stewart of UK-based Seven Investment Management told CNN. Delta is still in a difficult situation at present and is being plagued by high oil prices, burgeoning pension fund payments, and pressures from creditors. Competition from low-cost airlines such as Southwest, Song and JetBlue is also biting into sales. “I think it is a losing battle. There are too many problems with U.S. airlines to be able to survive at the moment,” explains Stewart. “All we have to do is look at other areas of the world — such as Europe — and airlines such as British Airways to see what difficulty airlines have.” Other American carriers have not been as lucky as Delta. United Airlines has been in bankruptcy protection since late 2002. U.S. Airways has filed for bankruptcy twice in two years. While Hawaiian Airlines managed to emerge from two years of bankruptcy, but only two months ago. And ATA hopes to escape from bankruptcy — Chapter 11 –protection next year it is one of the only low-cost carriers to be in this situation. “Unlike most of the budget airlines, the large American airlines have got the wrong business model and they are having to change, just like the European airlines have,” says Stewart. So why does Delta, which has been hit by a weight of financial pressures, not go into bankruptcy protection in order to restructure? “The key issue they have got at the moment, aside from corporate pride, is the agreements Delta has with unions and suppliers that ensure the company is viable,” says Stewart. Restructuring would involve renegotiating such deals. Source : edition.cnn.com |