US Delta, Northwest file for bankruptcy (Reuters) Updated: 2005-09-15 07:14
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 problems were 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 attacks of September 11, 2001, 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.
LABOR COSTS
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 bankruptcy to get
concessions that unions have been reluctant to grant at the bargaining table.
"Northwest must significantly lower its costs to compete with other carriers.
Many of these are legacy carriers that have already used the bankruptcy
process," said Doug Steenland, Northwest president and chief executive. "We had
developed a plan to restructure Northwest outside of Chapter 11 and have been
implementing that plan ...
"Unfortunately, in addition to an uncompetitive cost structure, our efforts
have been overtaken by skyrocketing fuel costs."
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.
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