ATLANTA – The losses keep widening at Delta Air Lines Inc. (DAL) as the nation's third-largest carrier says it only has weeks left to avoid filing for bankruptcy.
The airline said Friday it expects to report a much wider loss for the third quarter because of a drop in its domestic passenger-mile yields, steeper fuel prices, significant pension increases and one-time charges.
In a filing with the Securities and Exchange Commission (search), the Atlanta-based airline reported that it expects its quarterly report to be released Wednesday to show a net loss of $625 million to $675 million, or $4.99 to $5.39 per share, for its quarter ended Sept. 30. In last year's third quarter, Delta reported a loss of $164 million, or $1.36 a share.
Analysts surveyed by Thomson First Call had forecast a quarterly loss of $3.79 per share on revenue of $3.89 billion.
On the New York Stock Exchange, Delta shares sank 32 cents, or 7.6 percent, to $3.89.
That news came as the Atlanta-based airline and its pilots union both reported progress in their talks over wage concessions, which Delta claims it needs to avoid filing for Chapter 11 (search). With its growing losses, the carrier said it does not have much more time.
"We have weeks, not months to reach an agreement," Delta spokeswoman Benet Wilson said.
The talks were expected to go into the weekend. Wilson described the meetings as "concentrated and intense." The union, on its Web site, reported: "While there are major issues to be resolved, we are making progress."
To help offset its losses, the airline is seeking $1 billion in annual concessions from pilots, while the union has publicly offered up to $705 million in annual savings, though it made a new contract proposal late last week, but it has refused to release details of the new offer.
Wilson said that even if the airline wins enough concessions from its pilots, that might not be enough to avoid bankruptcy if can't restructure its debt and implement the rest of its turnaround plan in time.
"We don't want have to do it, but we will have to restructure in the courts if we can't get all pieces to fall into place," she said.
The airline said in Friday's SEC filing that its quarterly loss will include a non-cash asset impairment charge of roughly $40 million from its agreement to sell eight MD-11 airplanes and a $14 million non-cash settlement charge for lump sum pension distributions to pilots who have retired.
Delta also said it no longer recognizes income tax benefits associated with current-period losses. This change was effective with the June quarter and will continue for the foreseeable future, the filing said.
The company said its financial performance "continued to deteriorate" during the quarter, primarily due to a significant decline in the domestic passenger mile yield compared to the levels in last year's third quarter, and historically high fuel prices.
Delta's unrestricted cash balance was $1.45 billion at Sept. 30, compared to $2 billion at June 30, the filing said.
Also in the filing, Delta said it is "on track" to achieve by the end of 2004 roughly $2.3 billion of its planned $5 billion in annual cost cuts.
The cost-cut plan, as outlined last month, is intended to cut $5 billion in annual costs by 2006.
The plan calls for more than 51 percent of the company's network to be restructured by Jan. 31, 2005, along with improvements to its products and services, network and fleet, operational efficiencies and productivity immediately and over the next three years.
Because the cost-reduction targets are substantial, Delta believes that, in addition to its lenders, other key shareholder groups, such as its lessors, vendors and employees, must participate in the process if it is to be successful, the filing said.
The transformation plan also contemplates the company regaining access to the capital markets on acceptable terms and raising a significant amount of new capital to meet its near-term operational needs.
Delta said late Wednesday that it was extending and sweetening its exchange offer to unsecured bondholders as part of its efforts to achieve an out-of-court restructuring.