Delta Air Lines Inc. (DAL) on Friday said a group of bond holders refused to change the terms of their securities, adding to the headwinds the airline faces as it struggles to avoid bankruptcy.

Shares and bonds of the nation's No. 3 carrier dropped on the news as investors fretted the company would have more difficulty than previously expected in negotiating more favorable terms for its $20 billion of debt.

"The more nails you nail into the coffin, the lower the stock will go," said Alok Makhija, deputy head of research at distressed debt brokerage DebtTraders (search) in New York.

Delta earlier this week unveiled plans to cut up to 7,000 jobs and trim costs by $5 billion a year by 2006.

The airline is expected to gain at least a portion of that savings from renegotiating the terms of its debt. Some investors will likely be asked to trade their bonds for new securities with lower face amounts, lower coupons, and longer maturities, analysts said.

Delta is struggling with high jet fuel prices, high labor costs and high borrowing costs. It is losing business to low-cost domestic carriers like Southwest Airlines (LUV) but is hoping to win customers back with its own low-cost airline, Song. It plans to expand Song as part of its restructuring.

The company last month asked investors in about $1.5 billion of secured notes to agree to change the terms of their lending agreements to allow the airline to buy back and hold the notes, seen as a first step in renegotiating the terms of the securities.

Delta said on Friday that investors had not agreed.

The notes, known as pass-through certificates and equipment trust certificates, were used to finance the purchase of airplanes.

A group of investors holding about $1.4 billion of senior secured Delta debt — including pass-through certificates, equipment trust certificates and other debt — said late last month it would not agree to changes until it knew more about how Delta plans to renegotiate its debt and fix its business.

After that announcement, the airline's statement on Friday that it had failed to get consent to change the terms of the notes was not a complete surprise.

But there was still some expectation that creditors would agree to the changes at the 11th hour, said Ron Bringewatt, head of research at the Seaport Group, a distressed debt brokerage in New York.

Just about all parties have an interest in renegotiating Delta's debt outside of bankruptcy court. Reorganizing under Chapter 11 is a long, expensive and grueling process.

But some investors and lenders would fare better than others in Chapter 11 and may be more willing to send the company into bankruptcy.

Delta shares fell 4 percent, or 16 cents, to $3.76 in early-afternoon trading on the New York Stock Exchange (search). The company's unsecured bonds with an 8.3 percent coupon due 2029 fell 3 cents on the dollar to 24 cents on the dollar.