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Bankruptcy filings roil airlines’ shares

September 15, 2005

By Jui Chakravorty and Christian Plumb

NEW YORK (Reuters) – Delta Air Lines shares shot higher on
Thursday, one day after it declared bankruptcy as expected, but
Northwest Airlines stock plunged as it surprised investors by
also seeking Chapter 11.

Shares in Northwest dropped more than 50 percent as
investors dumped them after the company surprised the Street
and filed for Chapter 11 federal bankruptcy protection, while
Delta shares rose more than 30 percent.

Delta and Northwest, the third- and fourth-largest U.S. air
carriers, both declared bankruptcy on Wednesday as the
industry’s struggle with soaring oil prices and low-cost
competition led to one of its darkest days.

While Wall Street took different takes on each filing, one
analyst said this kind of stock disparity is not that unique.

“I’ve seen it with other bankruptcies,” said Susan
Donofrio, an analyst at Fulcrum Global Partners. “I think it
really has to do with retail investors and airline customers.
They hear about a filing, they see an aircraft flying and they
assume there’s some value on the stock and that they’re going
to get it at a bargain.”

While Delta’s filing had been long expected, Northwest’s
came as a surprise to many on Wall Street, including analysts
at blue-chip securities firms J.P. Morgan and Morgan Stanley,
who reiterated their “overweight” ratings on its stock before
the filings.

The New York Stock Exchange on Thursday said it is
reviewing the listing status of Delta’s common stock and
related securities. The Exchange has suspended trading in
Northwest’s debt securities, and said it would move to delist
those securities.

Wall Street analysts also weighed in on the airlines.

Until Thursday, Prudential analyst Bob McAdoo had an
“overweight” rating on Northwest shares. However, he cut the
rating to “underweight” following the Chapter 11 filing.
Fulcrum Global Partners had a “buy” rating on Northwest until
Thursday, when it downgraded it to “sell.”

The analysts stuck by the Eagan, Minnesota-based airline
even after Northwest’s pilots disclosed the airline’s board was
set to consider whether to seek a bankruptcy filing.

Northwest shares were down 49 percent at 95 cents each in
morning trade, after plunging more than 52 percent earlier in
the morning. Delta shares, however, rose 31 percent to 93 cents
in morning trade on the New York Stock Exchange.

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

Both carriers’ stocks will also be deleted from the Dow
Jones Transportation Average at the close of business on
Friday, Dow Jones said.

Bankrupt companies’ shares often continue to trade, as they
have with airlines UAL Corp. and US Airways Group Inc., but
their value is typically wiped out.

OFF TO THE COURTS

Delta is set to embark on Thursday on what may be a long
march through Chapter 11 with its first public hearing in U.S.
Bankruptcy Court in Manhattan. The hearing will clear the way
for Delta to start rejecting aircraft leases as it begins to
shrink its fleet as part of the reorganization process.

Both Delta and Northwest made clear on Wednesday that they
will focus on eliminating what they see as an excess of
available seats by reducing flights and switching to smaller
planes on some routes.

Those moves will almost certainly lead to further layoffs
at both, though neither airline said how many. That would add
to headaches for once well-paid airline workers.

Their pensions are also up in the air as both have made
clear they are unable to honor their current retiree
commitments.

Northwest’s Chief Executive Doug Steenland said on
Wednesday that the airline hoped to avoid a wholesale dumping
of pensions like the one earlier this year at United Airlines
that infuriated workers and politicians.

Both airlines may cancel orders for planes from Boeing Co.
and European archrival Airbus, making the bankruptcies a
potential negative for their shares, though analysts said the
planemakers would have little trouble placing their aircraft
elsewhere.

Delta’s filing could, however, hurt its leasing companies.
Computer services company Electronic Data Systems Corp. on
Thursday said it will take a third-quarter charge to write down
the value of its aircraft leases with Delta Airlines. Walt
Disney Co. on Wednesday said it may have to write down $100
million of Delta leases.

(Additional reporting by Patrick Fitzgibbons)




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