Delta on the brink of bankruptcy

April 1, 2005
In a filing with the Securities Exchange Commission, Delta Air Lines warned it could be forced into bankruptcy if it is unable to reduce operating expenses

In a filing with the Securities Exchange Commission, Delta Air Lines warned it could be forced into bankruptcy if it is unable to reduce operating expenses further. Improved cargo business hasn't been enough to counterbalance Delta's steep losses on the passenger side. Delta reported a $5.2 billion loss in 2004, the worst financial year ever for a major U.S. airline.

"Looking to the future, we know the road ahead is at least as long and difficult as the distance we've already come," admits Jerry Grinstein, Delta's CEO. He points out that five U.S. airlines, accounting for 25% of all domestic seats, are currently in bankruptcy. High industry capacity continues to foster a depressed fare environment; Grinstein says, and fuel prices remain volatile.

Delta claims that its ability to compete effectively with low-cost carriers and other airlines depends, in part, on its ability to achieve operating costs per available seat mile; unit costs that are competitive with those carriers. To that end, the airline has sought to reduce its labor costs, though it still faces significant pension funding obligations.

Cargo was one of the few areas where Delta had something positive to report: cargo revenues increased 7% to $500 million in 2004, primarily due to a 13% increase from higher international freight volume and yield. However, 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.

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