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Delta, Northwest File for Bankruptcy Protection

BY Admin  September 14, 2005 at 5:30 PM EST

Delta had warned for months that filing for bankruptcy was a possibility, and the Atlanta-based company waited until after the stock market closed Wednesday before announcing its decision.

Northwest followed soon thereafter.

“Delta is overleveraged and they weren’t going to stay out of bankruptcy, no way,” said Ray Neidl, an analyst at Calyon Securities, according to Reuters.

Delta’s total debt is roughly $20.5 billion, and it listed $21.6 billion in assets as of June 30, reported the Associated Press. The asset figure makes Delta’s bankruptcy the ninth-largest in U.S. history, according to bankruptcy tracker New Generation Research Inc.

Delta passengers are not expected to see any changes in service right away as the airliner continues its normal routes for now.

Northwest Airlines Corp.’s board, which met Wednesday, also filed for Chapter 11 protection against creditors in U.S. bankruptcy court.

The Eagan, Minn.-based carrier’s problems are attributed to labor costs, which the airliner is trying to slash by $1.1 billion.

Northwest’s mechanics and cleaners went on strike last month, and the company has hired replacement workers.

Northwest was facing a lien against its assets if it missed a $65 million pension payment due Thursday, said credit rating firm Standard & Poor’s, according to Reuters.

The Sept. 11, 2001 attacks and subsequent slowdown in air travel caused the airline industry to take a financial hit. Recent refinery outages due to Hurricane Katrina caused fuel prices to spike, taking a further economic toll on the industry.

U.S. airliners are expected to post about $10 billion in losses this year, Reuters reported.

Two other major airlines have filed for bankruptcy: UAL Corp., the parent company of United Airlines, and U.S. Airways Group Inc.

The bankruptcies could give the airliners a leg up against their competition by enabling them to shed labor and pension costs. If the bankrupt carriers reduce their routes, however, their competitors could end up benefiting.