Delta shares fall almost 15 pct on bankruptcy fear
Tue Aug 2, 2005 03:23 PM ET
NEW YORK, Aug 2 (Reuters) - Shares of Delta Air Lines (DAL.N: Quote, Profile, Research) fell almost 15 percent on Tuesday, pressured by what analysts said was further concern about a possible bankruptcy for the company.
"Investors are focused on liquidity issues," S&P analyst Jim Corridore said.
"I think Delta will run into some serious liquidity issues in the fall. Unless it sells its regional airlines, it is going to have to file for bankruptcy," he said, referring to Comair and Atlanta Southeast Airlines, Delta's regional units.
Delta did not return a call seeking comment.
Delta shares, which have fallen almost 66 percent since the beginning of this year, were down 43 cents, or 14.48 percent, to $2.54 on Tuesday afternoon on the New York Stock Exchange.
Struggling with rising fuel costs and steep competition from low-cost carriers, the No. 3 U.S. airline earlier this year said it did not have enough cash to meet its liquidity needs through 2005.
Chief Executive Gerald Grinstein last week told employees in a memo that the airline's efforts to cut about $5 billion in costs were "not enough" to avoid a possible bankruptcy filing.
The memo came after Delta announced a $382 million loss for the second quarter.
The Atlanta-based carrier narrowly avoided bankruptcy late last year when it managed to shore up $1 billion in annual wage and benefit concessions, and $1.1 billion in financing from creditors General Electric Commercial Aviation Services (GE.N: Quote, Profile, Research) and American Express (AXP.N: Quote, Profile, Research) .
Corridore, who has a "sell" rating on the stock with a price target of $2, said the current stock price is not discounted for the airline's risk of bankruptcy.
Susan Donofrio, an airline analyst with Fulcrum Global Partners, said an article in the Washington Post on Tuesday citing the possibility of Delta Air Lines and Northwest Airlines filing for bankruptcy in mid-September also affected the stock.
Northwest (NWAC.O: Quote, Profile, Research) shares were down 7 cents, or 1.43 percent, to $4.84 in afternoon trade on the Nasdaq.
The newspaper said the airlines would likely file for Chapter 11 protection before a more restrictive bankruptcy law goes into effect in October.
A need to bolster pension costs -- underfunded by $5.3 billion -- over the next three years has also worsened the carrier's cash problems. Delta faces about $3.1 billion in pension costs between 2006 and 2008.
Delta and Northwest have been lobbying for pension legislation that would allow them to spread out pension payments over 25 years.
"Even if pension legislation does come through in Delta's favor, it still won't be enough for the carrier to stay out of court," Corridore said. (Additional reporting by Christian Plumb)
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