Delta, in Warning of Loss for the Year, Says Bankruptcy Is Possible

Delta Air Lines Inc. shares plunged Thursday after it warned it would post another substantial loss this year despite a recent round of pay cuts and other cost reductions. It also said a bankruptcy filing remained a possibility.

The disclosure in a filing fueled talk that the U.S.’ third-largest carrier might need to sell one or more of its feeder carriers.

Delta shares fell 56 cents, or 11.5%, to $4.33 on the New York Stock Exchange. That’s the largest percentage drop since its shares fell nearly 19% on Oct. 15, 2004, when Delta was previously on the verge of bankruptcy.

In its filing, Delta said that its cash reserves would be much lower at the end of 2005 than last year unless it could sell assets or raise money in other ways. Its ability to borrow more money is limited because it has already pledged most of its assets as collateral on previous loans.

Although the company did not specifically say that it plans to sell subsidiaries Comair Inc. and Atlantic Southeast Airlines, which handle flight connections for Delta, the warnings in the Securities and Exchange Commission filing suggest it may have to -- and quickly, analysts say.

“I think it is clearly one of the last options left for them in terms of raising cash,” said Bill Warlick, an airline analyst with Fitch Ratings in Chicago.

This week, speculation over Delta shedding the carriers increased when the chief financial officer of SkyWest Inc. told an investor conference in Florida that his company was discussing with Delta the possibility of it selling Comair and ASA.

Delta has declined to comment on the CFO’s statements, and Thursday refused to discuss the language in the SEC filing or answer any questions.

The Atlanta-based company said in its annual report filed with the SEC that it didn’t believe the company’s cash flows from operations would be sufficient to meet all of Delta’s money needs. It said it would have to tap available cash and the final $250 million it borrowed late last year from American Express Co.

The company, which has $3.4 billion in obligations in 2005 related to leases, interest on debt, debt maturities and funding of employee pensions, said its fate was uncertain -- adding that it would be forced to file for bankruptcy protection if it couldn’t further reduce expenses and continued to suffer losses.

“A restructuring under Chapter 11 of the U.S. Bankruptcy Code may be particularly difficult because we pledged substantially all of our remaining unencumbered collateral in connection with transactions we completed in the December 2004 quarter as part of our out-of-court restructuring,” Delta said in the filing.