Delta close to bankruptcy, says rating agency

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17/08/2005

Delta close to bankruptcy, says rating agency

Delta Air Lines faces "a very high risk of near-term bankruptcy," financial rating agency Standard & Poor's said yesterday as the third-largest US carrier scrambled in the face of a cash crunch.

According to AAP reports, S&P said it placed Delta's ratings -- already a low "CC" -- on "credit watch with negative implications" because of growing liquidity problems.

"The recent surge in fuel prices and Delta's disclosure that it will have to post USD750 million of cash collateral to extend its credit card processing agreement indicate that the airline's already slim chances of avoiding bankruptcy are dwindling rapidly," S&P analyst Philip Baggaley said.

Delta said on Monday it was offloading subsidiary Atlantic Southeast Airlines for USD425 million in cash to rival carrier SkyWest, and would use some of the proceeds to pay USD100 million in debt.

Despite this, S&P said Delta's cash reserves "will decline substantially during the remainder of 2005" and the carrier acknowledges "significant uncertainty" as to whether it will be able to "maintain adequate liquidity".

"Even if Delta is able to address near-term liquidity concerns, it needs also legislative relief from substantial upcoming pension funding requirements," S&P added.

"Delta will likely have to decide whether it can avoid bankruptcy by October 17 at the latest, after which amendments to the federal bankruptcy code implement less favourable terms for debtors."

According to S&P, Delta's overall debt amounts to about USD21 billion and its defined benefit pension plans are under-funded by more than USD5 billion.

17 August 2005

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