Delta Posts Larger Loss in Race Against Bankruptcy

Delta Air Lines Inc. (DAL) Wednesday reported a wider quarterly loss on soaring fuel prices and weak domestic airfares, and said time was running short as it races to cut costs to avoid bankruptcy.

The No. 3 U.S. airline said its third-quarter net loss widened to $646 million, or $5.16 a share, from $164 million, or $1.36, a year earlier.

The company's shares fell 9 cents, or 3 percent, to $2.90 at the stock market open.

Atlanta-based Delta has searched for ways to cut costs to restructure its business out of court. Like other airlines, it has been plagued by high costs, weak revenue, skyrocketing fuel prices and rising competition from discount carriers.

Delta has been in concession talks for more than a year with its pilots, among the highest paid in the industry. It has said it needs $1 billion in annual cost savings from pilots.

Its restructuring plan, devised under Chief Executive Gerald Grinstein (search), who took over at the start of the year, is intended to save the company $5 billion a year by 2006. But even if the carrier is successful in achieving targeted cost savings from creditors, lessors, vendors and employees, it has warned it still faces substantial liquidity needs in 2005.

"As Delta's financial situation continues to deteriorate, time is of the essence," Grinstein said in a statement.

As part of its cost-cutting efforts, Delta plans to cut 6,000 to 7,000 jobs, or about 10 percent of its work force, over the next 18 months and drop Dallas/Forth Worth as a hub. The job cuts include 1,500 to 1,800 executive and supervisory positions, the company said last week.

Calyon Securities analyst Ray Neidl said in a research note on Tuesday he did not believe Delta would file for bankruptcy immediately if progress is being made in pilot talks. The company's pending sale of its share in online travel company Orbitz (ORBZ) also buys Delta some time by raising much-needed cash, he said.

"Although time is getting short, we still rate the likelihood of a (bankruptcy) filing at 50-50," Neidl said. "We believe a pilots' agreement can be reached but have doubts if all of the debt restructuring can be completed."

Neidl upgraded his rating on Delta, however, to "neutral" from "sell," citing expectations for a pilot deal in the short term.

The airline last week warned again that it may have to seek bankruptcy protection unless it can restructure its debt load, and said it expected to post a third-quarter loss of $625 million to $675 million.

Analysts on average had expected Delta to post a loss of $4.44 a share excluding special items, according to Reuters Estimates.

Delta ended the quarter with $1.77 billion in cash, of which $1.45 billion was unrestricted.

It said operating revenue rose 5.9 percent in the quarter, but passenger unit revenue fell 3.7 percent compared with a year earlier, pressured by a 5.9 percent decline in domestic airfares.

The company also estimated it lost $50 million in revenue from four major hurricanes that impacted a large portion of its Southeastern operations during the quarter.

Delta said it expects to record significant one-time adjustments in the fourth quarter, including a gain from changes to retiree healthcare coverage and charges from voluntary and involuntary job-cutting programs.