Delta Air Lines Inc. has reached revised financing agreements with two key lenders that give the nation’s third largest carrier leeway to earn less but require it to have more cash on hand at all times.
The Atlanta-based airline disclosed the revisions Wednesday in a Securities and Exchange Commission filing.
Analysts believe Delta’s ability to raise cash will determine whether it has to file for bankruptcy protection. Some say a filing could come by the end of the year; others give Delta until early next year to turn things around.
In the filing, Delta said General Electric Co.’s finance division has agreed to reduce the specified levels of earnings before interest, taxes, depreciation, amortization and aircraft rent that the airline must record for certain rolling periods to satisfy its loan. Delta requested the change because of high fuel prices.
However, GE is now requiring that Delta have at least $1 billion in unrestricted cash at all times. The prior terms allowed Delta to maintain only $750 million after Oct. 31.
Delta also said in the filing that it has signed a similar revised agreement with American Express Co.’s travel services division.
Failure to comply with the agreement terms could result in the lenders demanding immediate payment of the money they are owed.
GE and American Express loaned Delta nearly $1.1 billion last fall to help it avoid bankruptcy at that time. Delta, amid massive losses, has since spent the loans.
At the end of the first quarter, Delta had $1.8 billion in unrestricted cash. Because of high fuel prices and other factors, Delta has warned previously that its expects that its cash level will be substantially lower by the end of the year if it can’t increase revenue, cut more costs, sell assets or restructure debt.
Calyon Securities analyst Ray Neidl has estimated that Delta is burning through $4 million in cash a day and that, without an improvement, that could drop its unrestricted cash reserves to $1.47 billion by the end of June and $466 million by year’s end.
The end-of-the-year projection would put Delta well below the revised financing agreement terms with GE and American Express.
Delta, meanwhile, has significant financial obligations this year, according to regulatory filings. These include $1.1 billion in operating lease payments, $1 billion in interest payments, $835 million in maturing debt that must be repaid and $450 million in pension funding requirements.