Deltas Losses Could Mean Bankruptcy

Stronger cargo numbers weren’t enough to help Delta Air Lines cope with competition and losses on the passenger side of its business. The airline reported a $5.2 billion loss in 2004, the worst financial year of the major U.S. airlines. In a filing with the Securities Exchange Commission, the airline warned it could be forced to seek protection under Chapter 11 of the U.S. Bankruptcy Code.

Delta’s statement said, in part, “Our ability to compete effectively with low-cost carriers and other airlines depends, in part, on our ability to achieve operating costs per available seat mile; unit costs that are competitive with those carriers.”

In an effort to compete, Delta had sought to reduce labor costs. “On September 8, 2004, we outlined key elements of our transformation plan, which are intended to achieve the cost savings and other benefits that we believe are necessary to effect an out-of-court restructuring. If we are unsuccessful in further reducing our operating expenses and continue to experience significant losses, we will need to seek to restructure our costs under Chapter 11 of the U.S. Bankruptcy Code.”

Delta sees a struggle ahead, despite continued efforts to reduce costs and improve efficiency. Though the thought of Delta closing its doors is buried deep in the language it uses in the filing, the prospect is clearly stated: “We expect our revenue and cost challenges to continue. In addition, Deloitte Touche LLP, our independent registered public accounting firm, issued a Report of Independent Registered Public Accounting Firm related to our Consolidated Financial Statements that contains an explanatory paragraph that makes reference to uncertainty about our ability to continue as a going concern.”

Cargo was one area where Delta had some positive comments. “Cargo revenues increased 7% to $500 million in 2004,” said the airline, “primarily due to a 13% increase from higher international freight volume and yield.” However, the airline further stated this was partially offset by a 5% decrease due to lower mail volume and yield. “Cargo ton miles increased 6%, while cargo ton mile yield remained relatively flat,” said Delta.

Other stories related to Delta Air Lines:

United and Delta Take Another Hit

Delta Pulls Out Its Corporate Card

New SkyTeam Members Mean More Airfrieght Options

Delta Rallies Support for China Flights

Delta faces difficult negotiations (February 2004)

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