Delta Renews Talk Of Bankruptcy

Delta Airlines stock has recently dropped below last year's basement levels. It's debt is now rated as junk and the "B-word" -- bankruptcy -- is being bandied about more and more these days in the company's Atlanta headquarters.

Delta is in trouble.

"They can continue for a while," said Philip Baggaley, an analyst with Standard & Poor's, speaking with the Atlanta Journal-Constitution. He said Delta can probably struggle through another year or two, but would be increasingly vulnerable to competitors or unexpected events.

Even though most analysts don't think Delta's darkest hour will come until next year at the earliest, CEO Gerald Grinstein faces an uphill struggle to cut costs. Chief among them: pilot pay. Delta pilots are making about 60-percent more money each year than their counterparts at American and United -- both of which restructured salaries in the wake of the industry-wide slump encountered after 9/11. There doesn't seem to be a lot of common grounds between the carrier and its pilots. Delta asked them for a 30-percent, phased-in pay cut. Pilots countered with an offer to cut their salaries by just 9.5 percent and to forego a 4.5 percent raise that goes into effect May 1.

If pilots and other workers refuse to lower their salaries, Delta could use that as a reason to file for Chapter 11. Right now, Grinstein is going from hub to hub, hoping to convince pilots that they must either lose a little or lose it all when it comes to pay.

But unless pilots are willing to open early talks on the salary issue, the possibility of pay cuts doesn't come until May 2005. That's when the current contract becomes amendable.

"Our position hasn't changed," said Allied Pilots Association spokeswoman Karen Miller. "We're still willing to negotiate with the company. Management's going to have to be willing to engage in these discussions with something other than demanding their opening position.

But remember that part about "vulnerability to competitors or unexpected events"? One of those unexpected events is unfolding right now -- a tremendous rise in the cost of fuel. Since January, the airline has seen an 18-cent per gallon rise in the price of fuel. That happened when the airline sold its fuel contracts, which were priced at 74-cents a gallon, to raise cash, doing so on predictions the price of fuel would actually go down. Whoops. Delta now pays 94-cents a gallon.

Analysts predict, unless the price of Jet-A goes down sometime in the near future, Delta's problems will only be compounded -- and perhaps accelerated.

FMI: www.delta.com