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
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
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