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Delta to file for bankruptcy Wed: source

September 14, 2005

By Christian Plumb and Jui Chakravorty

NEW YORK (Reuters) – Delta Air Lines Inc. is expected to
seek bankruptcy protection later on Wednesday, a source
familiar with the situation said, as rival Northwest Airlines
Corp. considers doing the same.

Delta would become the third major U.S. airline operating
under court protection, dramatizing the industry’s struggle
with soaring oil and competition from low-cost carriers.

The sector’s woes went from bad to worse this month as
refinery outages caused by Hurricane Katrina sent jet fuel
prices spiking. U.S. airlines are expected to post some $10
billion in losses this year.

Atlanta-based Delta’s woes have been compounded by a
crushing debt load of more than $20 billion and one of the
industry’s biggest underfunded pension burdens.

Founded in 1928, Delta became a top international player by
taking over many routes from defunct Pan Am in 1991. It has
faced an uphill battle to recovery after getting hammered by
the September 11, 2001 terrorist attacks and the slowdown in
flying that followed.

“Delta is overleveraged and they weren’t going to stay out
of bankruptcy, no way,” said Ray Neidl, an analyst at Calyon
Securities.

The airline, which has warned for several months that
bankruptcy was a possibility, declined to comment on the timing
of any filing.

Northwest’s planned board meeting, disclosed by its pilots
union on Tuesday, will consider whether the airline should file
for Chapter 11 or try to restructure outside of bankruptcy.

LABOR WOES

Northwest’s woes are focused on high labor costs, which it
is trying to slash by $1.1 billion.

Analysts said Northwest, which hired replacement workers to
substitute for mechanics and cleaners who struck last month,
could be using the threat of a bankruptcy get concessions what
unions have been reluctant to grant at the bargaining table.

“There’s a good chance (of a Northwest filing),” Neidl
said, adding: “It depends on who wins that debate” at today’s
board meeting.

Both airlines would likely use bankruptcy to slash labor
and pension costs, following in the footsteps of No. 2 U.S.
carrier United Airlines, the main unit of UAL Corp..

The bankruptcies could put added pressure on other carriers
including AMR Corp., parent of American Airlines, by putting
them at a competitive disadvantage as their bankrupt rivals
shed costs and ditch pensions, analysts said.

On the other hand, other airlines would benefit if Delta
and others cut back on domestic routes, getting rid of
overcapacity which has made the U.S. airline sector the most
troubled worldwide.

Credit rating firm Standard & Poor’s said on Wednesday that
Northwest’s failure to make $42 million in payments due on
Tuesday made a bankruptcy filing likely, adding that it was
probable as soon as Wednesday.

Adding to pressure on the Eagan, Minnesota-based carrier,
Northwest would face a lien against its assets if it missed a
$65 million pension payment due on Thursday, S&P said — unless
the airline sought court protection.

United and US Airways Group Inc. are both already operating
in bankruptcy, though both are hoping to emerge soon — US
Airways with the help of a group of investors led by America
West Holdings Corp..

Additional bankruptcy filings could pave the way for
additional mergers and acquisitions in the sector, Merrill
Lynch & Co. analyst Michael Linenberg said in a report.

In Wednesday afternoon trade, Northwest shares, which were
hammered Tuesday on expectation of a bankruptcy filing, had
recovered 34 cents or 22 percent to $1.92 each in busy trading
on Nasdaq. Delta shares were down 7 cents, or 9 percent, at 71
cents on the New York Stock Exchange.

Northwest’s stock has plunged 86 percent so far this year,
while Delta has lost 90 percent of its value.

On the debt markets, Northwest’s 10 percent notes due in
2009 rose to 26 cents on the dollar, about 2-1/2 cents higher
on the day, after tumbling more than 9 cents on Tuesday,
according to MarketAxess.

Delta’s 8.3 percent bonds due 2029 rose to 16 cents on the
dollar, about 0.5 cent higher on the day, according to
MarketAxess. They are still about 3/4-cent lower month-to-date.

(Additional reporting by Dena Aubin)




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