Delta Air Lines Inc. and Northwest Airlines Corp., hobbled by high fuel costs and heavy debt and pension obligations, filed for bankruptcy protection from creditors Wednesday, becoming the third and fourth major carriers to enter Chapter 11 since the 2001 terrorist attacks.
Delta’s late-afternoon filing included its low-fare subsidiary Song and was followed shortly after by Northwest’s.
Delta’s total debt is roughly $28.3 billion, and it listed $21.6 billion in assets, according to the filing. The asset figure would make Delta’s bankruptcy the ninth-largest in U.S. history, according to bankruptcy tracker New Generation Research Inc. The ranking did not change following Delta’s recent $425 million sale of feeder carrier Atlantic Southeast Airlines to SkyWest Inc.
Both airlines are current with their payments to Denver International Airport, spokesman Steve Snyder said.
Delta and Northwest said passengers were not expected to see any immediate effects from the filings. Delta also promised to honor all tickets and sent a letter to frequent-flier customers seeking to reassure them. Northwest said it would continue to operate normally its frequent-flier and WorldPerks Visa programs.
“We are operating our full schedule of flights, honoring tickets and reservations as usual and making normal refunds and exchanges,” Gerald Grinstein, chief executive of Delta, said in the letter.
Chapter 11 protection will allow Delta to pursue cuts in wages for its 65,000-plus full-time employees, as well as in pension and health benefits for workers and retirees, that would have been more difficult or impossible without protected status.
Delta was expected to continue its normal schedule. However, as the company makes its way through bankruptcy court, some changes to Delta’s operations could occur, analysts say.
Atlanta-based Delta, the nation’s third-largest carrier, has lost nearly $10 billion in the last four years despite announcing it would cut up to 24,000 jobs.
The airline industry was hit hard by the Sept. 11, 2001, terrorist attacks, which led many people to reduce air travel.
In September 2004, Delta also said it would shed its Dallas hub as part of a sweeping turnaround plan aimed at saving the airline. It has since scaled back its operations in Dallas.
Northwest, the country’s fourth-largest airline, had been in better financial shape than some of its competitors, with an extensive Asian network and cargo business both thought to be profitable. But that changed after 9/11, the rise in fuel prices and the epidemic of SARS, a virus that spread through several Asian countries.
The recession and slow economic recovery in the early part of the decade also eroded airlines’ business, and the rise of low-cost carriers such as JetBlue Airways Corp. further stymied the big carriers’ rebound.
Delta and Minneapolis/St. Paul, Minn.-based Northwest follow into bankruptcy UAL Corp., the Elk Grove Village, Ill.-based parent of United Airlines, and Arlington, Va.-based US Airways Group Inc.
What it means
What will consumers notice as a result of Northwest’s and Delta’s bankruptcies?
Not much, experts say. Both airlines have promised to honor all tickets already issued, but they’re free to change their routes and schedules. Frequent-flier miles should remain intact.
What are their operations at Denver International Airport?
Northwest has about 35 daily flights and about 105 employees. Delta and its partners have about 42 daily flights and more than 90 employees.
Breakdown: Answers to key questions about the airline bankruptcies. 5C
FAQ
Questions and answers about the impact of bankruptcy filings by Delta and Northwest airlines:
Q. Why did they file for bankruptcy now?
A. They have been squeezed hard by high labor and jet-fuel costs. Each has lots of long-term debt, including underfunded pension plans. And beginning Oct. 17, changes in bankruptcy law will make it harder for companies to cancel their debts.
Q. What happens to passengers?
A. Both promise to honor tickets already issued. The airlines are free to change schedules and cut routes, however. Anthony Sabino, a business professor at St. John’s University in New York, said there could be some service disruptions.
Q. Will frequent-flier miles be affected?
A. “No, not unless they want to commit suicide with their customers,” New York bankruptcy lawyer William Rochelle says. With past bankruptcies, the airlines have done their best to honor frequent-flier plans. But there is no certainty about bonus and promotion programs.
Q. How will employees be affected?
A. A bankruptcy judge could void contracts and impose layoffs, pay cuts and work-rule changes. The airlines could ask the court to impose the sorts of concessions they have been trying to negotiate with unions, or they could seek even deeper pay and job cuts.
Q. What happens to retirees?
A. The airlines could seek to dump pension obligations on the federal Pension Benefit Guaranty Corp., though it wasn’t immediately clear if they will.
Q. How will stockholders be affected?
A. They might lose everything. When companies emerge from Chapter 11, the new owners are typically secured creditors, such as banks and note holders.
Q. What about creditors?
A. Secured creditors take priority, and unsecured creditors must wait in line.
Q. What will be the effect on the airline industry?
A. Rochelle says, “A successful reorganization, especially including lower wages, will present a major competitive threat for the other network carriers with higher costs.”
THE ASSOCIATED PRESS
Some airlines are in better fiscal shape
The status of the four major airlines in bankruptcy and two others that for now are safe from it:
Delta: Filed for Chapter 11 on Wednesday. The nation’s No. 3 carrier will spend the next several months or even longer working on a reorganization plan. It will continue to operate during that time.
United: The nation’s No. 2 carrier has said it intends to emerge from bankruptcy Feb. 1 after 38 months in Chapter 11. The company, which filed for Chapter 11 in 2002, used the leverage of bankruptcy law to slice $7 billion from its annual costs and dump its pension obligations.
US Airways: The nation’s No. 6 carrier in terms of revenue and No. 7 in terms of revenue passenger miles is in its second bankruptcy filing since 2002. It is poised to emerge late this month or early in October and merge with Tempe, Ariz.-based America West Airlines. Today, a bankruptcy judge will hold hearings to confirm US Airways’ plan of reorganization.
Northwest: The nation’s No. 4 carrier filed for bankruptcy Wednesday, entering Chapter 11 on the same day as its larger rival, Delta. The carrier said this month it needs labor cost savings and changes in pension laws and that it is hurting from high fuel prices.
Continental: Had a big cost advantage over other traditional airlines after it slashed expenses during two bankruptcy reorganizations in the 1990s. Recently, the company set a goal of winning $500 million in annual concessions from labor groups. It got $418 million and is negotiating with flight attendants.
American: The nation’s largest carrier may be the strongest financially of the traditional airlines, thanks to $1.8 billion in annual labor concessions it won in 2003, when it was near bankruptcy. AMR earned $58 million in the second quarter, its second profitable period since 2000, but it has $3.4 billion in cash and short-term investments.
THE ASSOCIATED PRESS
