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Record Fuel Prices Push Delta to $388M Loss

Posted on: Monday, 25 July 2005, 06:00 CDT

Delta Air Lines lost another $388 million in the second quarter as soaring fuel prices swamped cost-cutting efforts and increased the chances that the USA's No.3 carrier will enter Chapter 11 bankruptcy.

Delta's loss -- equal to $2.64 a share -- was smaller than Wall Street analysts' consensus. And it was much less than the nearly $2 billion it lost in the year-ago quarter.

Still, the loss contrasts sharply with quarterly profits of three smaller carriers -- America West, JetBlue and Alaska Air -- also reported Thursday. Earlier, major rivals American and Continental and discount king Southwest reported profits for the April-June quarter.

CEO Gerald Grinstein said Delta cut its non-fuel costs and increased revenue for the quarter.

But "record-high fuel prices and other factors out of our control ... outpaced our transformation and masked our progress."

When one-time accounting items are excluded, Delta's performance last quarter looked much like the year-ago quarter: a $304 million loss for April through June vs. a $312 million loss a year earlier.

The biggest factor in that lack of progress -- a 53.3% jump in the average price paid for jet fuel to $1.60 a gallon in the second quarter this year, vs. a year ago.

Analysts have expressed concern about Delta's dwindling cash, $1.7 billion at the end of the quarter. Under recently renegotiated terms of loan arrangements, it must maintain a balance of at least $1 billion in unrestricted cash, leaving Delta only about $700million as a cushion. JPMorgan airline analyst Jamie Baker said in a report that his "skepticism has increased markedly in the apparent absence of progress" on improving Delta's liquidity.

Investors pushed Delta's already distressed stock down 9.2% Thursday, to $3.55 a share at the close.

Also contributing to growing skepticism: signs that Congress may not give Delta as much pension-funding relief as it seeks, and a management shake-up that this week included naming the sixth CFO in eight years.

Baker said Delta's ability to avoid a Chapter 11 filing later this year or in early 2006 "rests entirely on both meaningful liquidity enhancements and airline-specific pension reform."

But Grinstein, in a conference call, rejected a suggestion that Chapter 11 bankruptcy is inevitable.

"We continue to believe an out-of-court restructuring is the best way," he said. Other airlines' performances:

*America West. Despite spending more on both fuel and labor, America West reported a $13.9 million profit for the second quarter, equal to 29 cents a share.

A year ago it, earned $10.7 million, or 20 cents a share. The Tempe, Ariz.-based carrier's revenue grew 20% on just a 2% capacity increase, a sign of fuller planes and higher average fares.

*JetBlue. The New York-based discounter reported a second-quarter profit of $12.2 million, or 11 cents a share. That was down 43% from $21.5 million, or 19cents a share, in the second quarter of 2004, but it met the consensus expectation of analysts.

*Alaska. For the second quarter, the carrier reported net profit of $17.4 million, or 56 cents a share, vs. a loss of $1.7 million, or 6 cents a share, in the year-ago period.

Excluding one-time items, Alaska's profit last quarter was $24.7 million, or 74 cents a share, vs. a profit of $8.2 million, or 31 cents, in the year-ago quarter.

Source: USA TODAY

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