$10 Billion Losses Result in Four A/L Bankruptcies

ANN RealTime Update 09.14.05, 1702: As postulated repeatedly by ANN, both Northwest and Delta Airlines have given up any hint of financial solvency and filed for bankruptcy. This now means that some half the seats being flown by US Air Carriers are being conducted under the cloud of bankruptcy.

With four major air carriers now fighting for their corporate lives in today's courts, one thing is becoming obvious, the "old way" of conducting airline business is about to go the way of the dinosaur and a new industry is going to have to come about in its stead.

For the moment, though, both airlines are promising that it going to be business, more or less, as usual and that the bankruptcy filings should not give anyone pause to fly another carrier. To many, that's tough sell... and to a number of industry wags, one must observe that there is now a dearth of available seats to buy that AREN'T in bankruptcy.

Delta, the nations's third largest airline, was the first to file on Wednesday, with NWA close behind. Delta is based in Atlanta, GA, and hasn't been profitable since 2000. With the Chapter 11 filing, Delta enjoys protection from its creditors while it attempts to reorganize under the supervision of the federal Bankruptcy courts. Various reports indicate that Delta has lost over 6 billion dollars since 1981 but has been criticized for failing to initiate cost containment efforts until serious damage had been done to the company. Delta flies nearly 350,000 per day and has an employee base of 60,000. In addition to its principal Delta Airline operations, Delta also conducts business as Delta Shuttle and Song (an effort to emulate the low-cost Southwest formula). Despite payroll costs that have been cut over 18% in the last year, the rising cost of fuel (increasing by 50% in one year), far beyond even most pessimistic expectations, has forced Delta into the filing.

The Northwest filing was complicated by a mechanics strike that occurred despite reaching agreements with other segments of the NWA labor force. NWA is the nation's fourth largest carrier and seemed to be making some progress in cost containment until the strike, but has operated a fairly full schedule despite the labor action. In a Wednesday press conference, Northwest CEO Doug Steenland stated that, "The US airline industry has changed permanently, and Northwest must change with it... Clearly this is the right and the necessary decision."

Steenland also admitted that there would 'definitely be layoffs' at NWA, based in MN, before the end of the year though the extent of those reductions remained to be determined. In the meantime, NWA is handling its maintenance chores with 1200 replacement workers after tough bargaining with a recalcitrant Mechanics union resulted in the labor action. NWA had demanded 25 percent pay cuts and labor force reductions of up to half its maintenance staff during its labor negotiations when AMFA and NWA parted ways. With cash reserves dwindling, it is expected that NWA will have to go back to its labor force and ask for even more in the way of pay cuts in order to deal with the increasing costs of fuel and an expected shortfall in meeting its pension obligations.

FMI: www.delta.com. www.nwa.com