Say Carrier Shouldn't Be Allowed To Reject Leases

It turns out US Airways isn't the only party with issues regarding a plan put forth by Delta Air Lines to emerge from Chapter 11 bankruptcy. Several entities, including the city of Los Angeles, have filed complaints in US bankruptcy court, saying the plan should not be approved due to the authority it gives Delta to reject certain leases.

Thursday was the last day creditors could object to the plan, which Delta hopes will be approved following a February 7 hearing. The Associated Press reports officials in Denver, CO; West Palm Beach, FL; and Puerto Rico also lodged protests with the court, as did a loose committee of Delta's unsecured creditors.

The City of Angels says Delta's disclosure statement is accompanied by a reorganization plan that is "not confirmable as a matter of law and, thus, should not be approved because proceeding with a solicitation of the plan in its present form would waste valuable judicial and estate resources."

So, what's the problem? According to officials in LA, Delta's plan gives the carrier too much leeway to reject leases at airports Delta currently flies out of... including LAX and Ontario International, both owned by the city.

The city of Los Angeles also says Delta's disclosure statement, which accompanied the reorganization plan, does not specify how it plans to handle such leases, and gives the Atlanta-based carrier too much discretion in deciding which leases it will honor throughout the original terms.

Delta spokesman Michael Freitag told the AP the objection is a "classic issue that comes up in every Chapter 11 case."

"We believe the disclosure statement meets the appropriate standards for adequacy under the bankruptcy code, and we're confident any objections to the disclosure statement will be resolved in a manner that allows Delta to remain on schedule to emerge from Chapter 11 in spring 2007," Freitag said.

A separate filing by the city of Denver adds statements made in the disclosure agreement violate the bankruptcy code... making the reorg plan "unconfirmable." That sentiment was echoed by other claimants, as well.

As Aero-News reported, Delta filed the reorganization plan December 19. The carrier amended it one month later.

US Airways Group -- which is attempting a hostile takeover of Delta, has asked Delta's official creditor committee to support postponing the February 7 bankruptcy hearing. If that condition, along with others, is not met by February 1, USAG says it will withdraw its bid for the carrier.

FMI: www.delta.com