CHICAGO – Delta Air Lines Inc. (DAL) on Monday said General Electric Co.'s (GE) GE Commercial Finance has agreed to provide it $500 million of financing, another positive step in the airline's fight to avoid bankruptcy.
Up to $100 million of the financing will be provided by American Express Co. (AXP) under a deal announced last week.
The new financing commitment comes just days after the No. 3 U.S. airline won a tentative agreement with its pilots that will save it $1 billion a year. Delta hopes the pilot deal and other cost-saving measures will help it restructure without seeking Chapter 11 protection (search).
"This financing is another step forward. If you look at the laundry list of stuff they have accomplished over the last week-and-a-half, it's obvious they are trying to avert near-term bankruptcy," said Rob Halder, distressed debt analyst at Tejas Securities.
"With this announcement, and other announcements, it is much less likely that Delta will file for bankruptcy in the near term," he said.
American Express said it would lend Delta up to $600 million last week, in part by extending a credit card marketing partnership with the Atlanta-based airline.
Delta said $300 million of the GE financing will be in the form of a senior secured revolving credit facility, and $200 million will be in the form of a senior secured term loan.
Delta said it would use its accounts receivable as collateral for the revolving credit line and a big chunk of its remaining unencumbered assets as collateral for the term loan.
The $200 million loan will mature three years from the closing date, and will be payable in 12 equal monthly installments from the second anniversary of the closing date.
The agreement is contingent on a number of conditions.
Delta has been working feverishly to restructure debt with various stakeholders.
The airline is looking to exchange up to $680 million of new securities for up to $1.3 billion of existing debt. The initial Oct. 26 deadline for the debt exchange passed, but investors have a second opportunity to agree to the exchange by Nov. 18.
The carrier also reached a separate deal recently with some noteholders to defer $135 million of debt due in 2005 until 2007. In addition, it struck a new contract deal with a smaller union that represents its 185 flight superintendents.
Philip Baggaley, airline credit analyst at Standard & Poor's, also called the GE financing a move in the right direction.
Still, analysts cautioned that high fuel prices remain a threat to the carrier's long-term prospects.
"The real linchpin in all this is fuel prices coming down," Halder said. "They've bought themselves some more time. But if fuel prices stay where they are, in a few months Delta could find itself in the same spot it is in right now."
Delta shares rose 17 cents, or 3.1 percent, to $5.62 on the New York Stock Exchange (search).