Delta Conducts Last-Ditch Talks To Avert Bankruptcy-Court Filing
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
October 27, 2004
Delta Air Lines juggled last-minute efforts to squeeze concessions from its pilots union and creditors as it neared a self-imposed deadline to slash its costs or else file for bankruptcy-court protection.
Shares of the third-largest U.S. airline in terms of passenger traffic leapt 22%, or 85 cents, to $4.63 in 4 p.m. New York Stock Exchange composite trading amid expectations the Atlanta company would soon reach agreement with the pilots. Also buoying investor sentiment was Delta's announcement Monday that it had secured $600 million in cash and financing from American Express Co. and that it deferred payment of $135 million in debt due next year.
Delta and the Air Line Pilots Association recessed marathon talks late yesterday, and agreed to meet again today with the goal of reaching agreement on $1 billion a year in cost cuts. At the same time, Delta pressed ahead in separate negotiations with creditors, including General Electric Co.'s GE Capital Aviation Services unit, in an attempt to free up cash through debt deferments and new financing. The amount of cash that would become available through such an arrangement wasn't disclosed.
GE is one of Delta's major creditors. Delta said it doesn't disclose details of its creditors. According to Delta's filings with the Securities and Exchange Commission, GE's financing units last year completed debt-refinancing deals totaling $760.5 million. A spokesman for GE didn't return a call seeking comment.
Delta board members are due to arrive in Atlanta today, with the company prepared to make a bankruptcy-court filing as early as later today if it becomes clear a deal with the pilots isn't imminent, according to people familiar with the situation.
Winning concessions from the pilots remains the linchpin of Delta's financial rescue plan. Negotiators talked through the night Monday and all day yesterday at union headquarters in Herndon, Va., with the two sides close to an agreement. Delta has insisted that most of the pilot concession come largely in salary givebacks. The airline is seeking at least a 35% pay cut, while pilots have been pushing for more compensation in the form of stock and incentives in return for their givebacks.
Delta's plans call for roughly 20% of its postrestructuring stock outstanding to be in the hands of employees, including pilots. But pilots believe their portion should be larger since the size of their concessions dwarfs the $350 million from nonunion workers as part of a recent 10% pay cut the company recently said it would impose.
But even with a hoped-for pilot deal and new financing, Delta is far from clear of its financial woes. Much of its business plan is predicated on a steep decline in oil prices. Even if Delta finds more financial breathing room now, the airline remains at the mercy of external shocks such as high oil prices and intense fare competition.
The American Express financing that Delta secured will help the carrier bring its cash balance back up to $2 billion as it heads into the winter season, but the financing is contingent on the airline reaching a pilot pact. Delta reported unrestricted cash of $1.45 billion as of Sept. 30. And Delta's adjusted debt burden is still approaching $21 billion.
It also isn't clear what response Delta has received from bondholders to the company's recently sweetened offer to exchange $680 million in bonds for others with a later maturity. An initial deadline for the offer was set for yesterday, but Delta hasn't disclosed the results. A previous proposal earlier this month got little response from bondholders, causing the company to bolster its exchange in hopes that more bondholders would respond this time.
The last-minute maneuvering amounts to a house of cards built with restructurings and other crucial financial arrangements that could collapse if any other part of the concessions being sought falls apart. So far, Delta has restructured just a small portion of its $20.6 billion debt, and even those agreements depend on wringing concessions from Delta pilots, the highest-paid in the U.S. passenger-airline industry.
First-year pilots at Delta are paid about $4,200 a month, according to AIR Inc., an Atlanta career-consulting firm for pilots, while more-experienced captains are paid as much as $23,971 a month.
Separately, Delta said it reached a concessions agreement with its small flight-dispatchers union. Earnie Banks, vice president of the Professional Airline Flight Control Association, which represents about 185 Delta dispatchers, said his group was pleased to participate in the company's recovery effort. He declined to say how much in cuts the union was accepting.