Delta to Outsource Maintenance Work

Delta Air Lines Inc. (DAL), which is facing a cash crunch, Tuesday said it expects to cut costs by about $240 million over five years, becoming the latest airline to outsource aircraft maintenance work.

Atlanta-based Delta said it will partner with Avborne of Miami and Air Canada Technical Services of Vancouver, Canada, to conduct heavy maintenance work on its aircraft fleet, cutting costs by 34 percent.

Amid rising fuel prices and fare wars stemming from tough competition, several struggling U.S. airlines have outsourced maintenance work to cut costs, including UAL Corp.'s United Airlines (UAL), Northwest Airlines (NWAC), Alaska Airlines (ALK) and US Airways Group Inc.

The parent of Air Canada, ACE Aviation Holdings Inc., on Tuesday said its contract to conduct heavy maintenance, repair and overhaul work on the Delta fleet would be worth $300 million over five years.

Delta also plans to reduce operations at its Tampa hangar, shifting some work to Atlanta.

Tony Charaf, senior vice president of technical operations, outlined the planned savings in a memo to staff that was filed with the Securities and Exchange Commission (search). As previously announced, the division is slated to lose 1,600 to 2,000 jobs out of a total 6,000 to 7,000 job cuts.

In addition, the carrier on Monday filed with federal regulators to sell up to $500 million in common and preferred stock, debt securities, warrants and other securities, and said it would use the proceeds for general corporate purposes.

Delta shares rose 11 cents, or 2.8 percent, to $4.09 in morning trading on the New York Stock Exchange.

"Any move to cut costs at this point, however small, helps the airline," Calyon Securities analyst Ray Neidl said in an interview.

Delta, the No. 3 U.S. carrier in terms of passenger traffic, expects to face liquidity issues over the next two years as higher oil prices add as much as $1 billion to its costs, Chief Executive Gerald Grinstein said last week.

The carrier avoided a Chapter 11 filing late last year when it managed to shore up $1 billion in annual wage and benefit concessions for five years, and $1.1 billion in financing from creditors GE Commercial Aviation Services and American Express .

Despite the cash crunch, the airline should be able to avoid a bankruptcy filing, Grinstein said last week.

But Prudential Equity Group airlines analyst Bob McAdoo on Monday said in a note that Grinstein's comments increased his concern that Delta will "push near, if not into, Chapter 11 this fall."

Two of the 10 leading U.S. airlines -- United Airlines and US Airways -- are now operating under Chapter 11 bankruptcy protection, giving them what some rivals say is an unfair advantage in being able to cut fares and lower costs.

With pressure from low-cost rivals Southwest Airlines (LUV), AirTran Airways and JetBlue Airways (JBLU) likely to intensify as the carriers expand on the East Coast, McAdoo said Delta is running out of time.

Delta, which has slightly more than $1 billion cash on hand, must make $450 million in payments on its pension plans this year and $630 million in debt repayments coming due near the end of the year.

The airline has not decided whether to sell its regional units, Comair and Atlantic Southeast Airlines. Analysts' estimates for the sale price of both regionals range from $300 million to almost $1 billion, with regional feeder Skywest Inc. a likely buyer.

The company last year posted a record net loss of $5.2 billion.