Moody's Places Delta Air Lines On Review-Down
DOW JONES NEWSWIRES
May 12, 2004 1:37 p.m.
The following is a press release from Moody's Investors Service:
New York, May 12, 2004 -- Moody's Investors Service placed the ratings of Delta Air Lines, Inc. ("Delta," Senior Implied Rating B3) on review for possible downgrade. All ratings, including the company's Senior Implied Rating of B3, are included in the review except for certain Enhanced Equipment Trust Certificate transactions that are supported by monoline insurance policies and certain Comair transactions supported by external guarantees.
The review is prompted by the ongoing difficulties the company has faced in stabilizing its operating performance and financial condition, both of which exhibited further deterioration in the most recent quarter due to high labor and fuel costs. In a statement contained in the company's first quarter 2004 10Q filed with the Securities and Exchange Commission, Delta indicated that it may be forced to seek restructuring of costs under Chapter 11 of the U.S. Bankruptcy Code if current ongoing efforts to reduce costs are unsuccessful. The filing also noted that Delta anticipates that absent circumstances beyond the company's control, it expects to meet its obligations as they come due but that it does not expect to be able to complete any significant new financing transactions for the foreseeable future. Moody's ratings have been supported by Delta's ability to maintain balance sheet liquidity that offered a degree of financial flexibility while it worked to improve its operations. Given the company's inability to complete additional financing transactions and a large amount of upcoming debt maturities and lease payments, liquidity is expected to weaken over the coming months.
Moody's review will focus on the company's ability to stem continuing losses ($387 million in the seasonally weak first quarter), achieve sufficient cash flow from operations to internally fund its business needs, and maintain an adequate liquidity profile. A return to positive earnings and adequate cash flow generation will require a reduction of Delta's stubbornly high operating costs; most critically, the company will need to make progress in the ongoing negotiations with its pilots union. Moody's will consider the potential implications of labor cost changes as well as Delta's ability to address other important cost issues including rising fuel costs. The review will also consider Delta's ability to enhance revenue generation in the face of significant competition in many of its markets from low cost carriers. The assessment of the company's liquidity will focus on Delta's ability, absent access to the capital markets, to meet substantial debt maturities, lease payments and pension obligations for the remainder of 2004 and 2005. Debt maturities for the remainder of 2004 are approximately $325 million (net of funding commitments) and approximately $1.2 billion in 2005.
Secured debt will be reviewed to determine if asset values have deteriorated to a degree that would warrant an adjustment due to increased loan to value risk. This aspect of the review could result in ratings actions that for secured debt include ratings changes of greater or less magnitude than a change in Delta's unsecured rating, if any.
Delta Air Lines, Inc, is headquartered in Atlanta, GA.
