NYT-
Fighting to Avoid Chapter 11, Delta to Sell a Regional Airline
By MICHELINE MAYNARD
Delta Air Lines agreed yesterday to sell Atlantic Southeast Airlines, one of its regional carriers, to SkyWest Airlines for $425 million. But a regulatory filing revealed just how bleak Delta's financial situation had become, and the airline said it could not rule out seeking bankruptcy protection despite the sale.
The deal with SkyWest was announced after Delta's shares plummeted, pushed down by a New York Times report on Saturday that the airline had begun seeking the financing it would need if it filed for Chapter 11 bankruptcy protection.
Delta shares closed yesterday at $1.39, down 22 cents, although its stock jumped more than 30 percent in after-hours trading on word of the sale.
Standard & Poor's also said it would remove Delta from the S.& P. 500-stock index on Thursday. Its shares have dropped more than 80 percent in the last year, the most of any stock in the benchmark index.
Even with the sale, Delta remains mired in crisis. Like other major airlines, it has been hit hard by the price of jet fuel, which has climbed 35 cents a gallon this year. That has cost Delta $875 million more than it had expected to spend on fuel in 2005, according to the airline's estimates.
In announcing the deal yesterday, Delta's chief executive, Gerald Grinstein, warned that difficulties remained.
"As Delta takes steps to secure its future as a competitive airline," Mr. Grinstein said, "we will continue to take a hard look at all of our operations and assets."
In a regulatory filing, Delta said that it had to meet $2 billion in obligations through the end of the year, including interest payments, capital expenditures, pension contributions and other requirements, exceeding the $1.7 billion in cash on hand at the end of June.
In addition to the requirements, Delta executives said they faced other obligations that were "beyond our control," particularly an arrangement with a credit card processor. Last week, Delta delayed its regulatory filing, revealing that a new credit card processor was demanding that it put money in reserve to handle its transactions.
Yesterday, Delta said it had extended its agreement with its existing processor but would be required to set aside a reserve it estimated would reach $750 million by Oct. 31. Another credit card processor was offering a similar deal, Delta said. It did not identify either company.
The airline said it was looking for alternatives, such as finding a financial institution to guarantee part of the reserve.
Meanwhile, Delta said its pilots, who may retire early at age 50 and take 50 percent of their pensions in a lump sum, were retiring faster than anticipated.
This year, 475 pilots have retired early, including 145 on Aug. 1. Of its 6,300 active pilots, 1,200 were eligible to retire effective Sept. 1, Delta said.
Given all that, its cash will "decline substantially" during the rest of the year. And if it reaches "an unacceptably low level, or we conclude that a competitive cost structure cannot be achieved through an out-of-court restructuring," Delta said that it would need to seek bankruptcy protection.
Short term, Delta would get some cash from the sale of Atlantic Southeast, known as A.S.A., to SkyWest. Both operate flights as the Delta Connection - A.S.A. in the South, SkyWest in the West. Delta owns another regional carrier, Comair, which it also would like to sell.
The deal had been expected for weeks. There are safeguards for SkyWest if Delta seeks bankruptcy protection.
SkyWest would pay Delta $350 million upfront, including $330 million in cash, and $20 million for aircraft leasing deposits. In turn, Delta signed a 15-year agreement to do business with the two carriers.
SkyWest would pay the remaining $125 million if Delta keeps its contracts with A.S.A. and SkyWest in place under bankruptcy, or four years from now if it does not seek Chapter 11 protection.
Conversely, SkyWest would not pay the $125 million if Delta filed for Chapter 11 and rejected its contracts with SkyWest and A.S.A., as airlines are allowed to do under court protection.
"I think it's clear that there's some risk that Delta will file for bankruptcy, and we had to protect ourselves," said Jerry C. Atkin, SkyWest's chief executive and a member of the family that founded the airline in 1972 in St. George, Utah.
He would not say whether SkyWest had agreed to accept lower fees from Delta, but added, "We've given Delta a lot of reason to want to retain us in bankruptcy."
Delta said it would use the money from the sale to finance its operations and to pay $100 million to GE Commercial Finance, which provided financing last year and helped it to avoid Chapter 11 then.
The airline is negotiating with GE to provide financing and other considerations in case it seeks bankruptcy protection, people with direct knowledge of the discussions said last week.
Fighting to Avoid Chapter 11, Delta to Sell a Regional Airline
By MICHELINE MAYNARD
Delta Air Lines agreed yesterday to sell Atlantic Southeast Airlines, one of its regional carriers, to SkyWest Airlines for $425 million. But a regulatory filing revealed just how bleak Delta's financial situation had become, and the airline said it could not rule out seeking bankruptcy protection despite the sale.
The deal with SkyWest was announced after Delta's shares plummeted, pushed down by a New York Times report on Saturday that the airline had begun seeking the financing it would need if it filed for Chapter 11 bankruptcy protection.
Delta shares closed yesterday at $1.39, down 22 cents, although its stock jumped more than 30 percent in after-hours trading on word of the sale.
Standard & Poor's also said it would remove Delta from the S.& P. 500-stock index on Thursday. Its shares have dropped more than 80 percent in the last year, the most of any stock in the benchmark index.
Even with the sale, Delta remains mired in crisis. Like other major airlines, it has been hit hard by the price of jet fuel, which has climbed 35 cents a gallon this year. That has cost Delta $875 million more than it had expected to spend on fuel in 2005, according to the airline's estimates.
In announcing the deal yesterday, Delta's chief executive, Gerald Grinstein, warned that difficulties remained.
"As Delta takes steps to secure its future as a competitive airline," Mr. Grinstein said, "we will continue to take a hard look at all of our operations and assets."
In a regulatory filing, Delta said that it had to meet $2 billion in obligations through the end of the year, including interest payments, capital expenditures, pension contributions and other requirements, exceeding the $1.7 billion in cash on hand at the end of June.
In addition to the requirements, Delta executives said they faced other obligations that were "beyond our control," particularly an arrangement with a credit card processor. Last week, Delta delayed its regulatory filing, revealing that a new credit card processor was demanding that it put money in reserve to handle its transactions.
Yesterday, Delta said it had extended its agreement with its existing processor but would be required to set aside a reserve it estimated would reach $750 million by Oct. 31. Another credit card processor was offering a similar deal, Delta said. It did not identify either company.
The airline said it was looking for alternatives, such as finding a financial institution to guarantee part of the reserve.
Meanwhile, Delta said its pilots, who may retire early at age 50 and take 50 percent of their pensions in a lump sum, were retiring faster than anticipated.
This year, 475 pilots have retired early, including 145 on Aug. 1. Of its 6,300 active pilots, 1,200 were eligible to retire effective Sept. 1, Delta said.
Given all that, its cash will "decline substantially" during the rest of the year. And if it reaches "an unacceptably low level, or we conclude that a competitive cost structure cannot be achieved through an out-of-court restructuring," Delta said that it would need to seek bankruptcy protection.
Short term, Delta would get some cash from the sale of Atlantic Southeast, known as A.S.A., to SkyWest. Both operate flights as the Delta Connection - A.S.A. in the South, SkyWest in the West. Delta owns another regional carrier, Comair, which it also would like to sell.
The deal had been expected for weeks. There are safeguards for SkyWest if Delta seeks bankruptcy protection.
SkyWest would pay Delta $350 million upfront, including $330 million in cash, and $20 million for aircraft leasing deposits. In turn, Delta signed a 15-year agreement to do business with the two carriers.
SkyWest would pay the remaining $125 million if Delta keeps its contracts with A.S.A. and SkyWest in place under bankruptcy, or four years from now if it does not seek Chapter 11 protection.
Conversely, SkyWest would not pay the $125 million if Delta filed for Chapter 11 and rejected its contracts with SkyWest and A.S.A., as airlines are allowed to do under court protection.
"I think it's clear that there's some risk that Delta will file for bankruptcy, and we had to protect ourselves," said Jerry C. Atkin, SkyWest's chief executive and a member of the family that founded the airline in 1972 in St. George, Utah.
He would not say whether SkyWest had agreed to accept lower fees from Delta, but added, "We've given Delta a lot of reason to want to retain us in bankruptcy."
Delta said it would use the money from the sale to finance its operations and to pay $100 million to GE Commercial Finance, which provided financing last year and helped it to avoid Chapter 11 then.
The airline is negotiating with GE to provide financing and other considerations in case it seeks bankruptcy protection, people with direct knowledge of the discussions said last week.
