Delta Air Lines Inc.’s battered stock plunged to a new low Tuesday after a Wall Street analyst advised clients to sell their shares on fears the nation’s third-largest carrier will file for bankruptcy within the next two months.
Also Tuesday, Delta said it is delaying for up to five days the filing of its quarterly report to the Securities and Exchange Commission, and its pilots union postponed plans to elect new officers to its executive committee and to fill a position on its negotiating committee.
The company’s market capitalization — the total value of the company’s outstanding shares — fell to $280 million, less than one-third the amount of discount carrier AirTran Airways despite Delta being 15 times larger in annual revenue.
Prior to the dip, Delta’s stock was already at a 43-year low.
The decline came after a research note by Merrill Lynch analyst Michael Linenberg, who lowered the Atlanta-based airline’s rating from neutral to sell.
“We think the recent surge in fuel prices greatly increases the likelihood of a bankruptcy filing within the next two months,” Linenberg said.
He said that while Delta, which has lost nearly $10 billion since January 2001, has been in talks with creditors about additional funding, he believes the surge in oil prices could keep lenders at bay for now.
He estimated that Delta’s fuel bill this year could grow by more than $1 billion, wiping out the $1 billion of cost concessions provided by the airline’s pilots last year.
“We think the probability of a Delta bankruptcy filing has grown, and we think investors should be mindful of Oct. 17, when more restrictive bankruptcy legislation becomes effective,” Linenberg said. “That could be a key factor in a Delta deciding whether to file for Chapter 11 bankruptcy.”
On Monday, Delta named a new treasurer after its previous treasurer left the company.
Delta’s chief executive has said the company’s current transformation plan, which includes cutting annual costs by $5 billion by the end of next year, is not enough to save the struggling carrier. The carrier, citing high fuel prices, reported late last month that it lost $388 million in the second quarter.
CEO Gerald Grinstein says Delta is still working hard to avoid a Chapter 11 filing, but he has acknowledged there are risks affecting the airline’s ability to do that.
As for the quarterly report, Delta said in a brief SEC filing late Tuesday that it can’t yet submit the report because it is currently negotiating with a third party to serve as its new Visa/Mastercard credit card processor. Its existing processing contract expires on Aug. 29.
“The results of these negotiations will impact the disclosures” in the quarterly report, Delta said, adding, “The contract is important to the registrant’s business because a substantial number of tickets that it sells are paid for by customers using Visa or MasterCard.”
Delta said it can’t accept these credit cards for payment unless it has a processing contract in effect. It also said its potential Visa/MasterCard processor has advised the airline that it will require a significant cash reserve, deposited with the processor immediately upon start of the new contract, for tickets purchased using Visa or MasterCard but not yet flown.
Delta said it is exploring alternatives to offset a portion of the cash reserve, but there can be no assurance whether or when it can implement an alternative.
The quarterly report was due by midnight. Delta said it will file the report within five days.
In a memo to pilots, the union said it has received information indicating that Delta may have accelerated the announced closing date of its Dallas hub to interfere with the election process.
The memo did not elaborate. In September 2004, Delta said it would close its Dallas hub by Jan. 31 of this year, and that move was completed then.
“Delta’s decision was purely economically based and had nothing to do with (the union’s) internal matters,” company spokesman John Kennedy said.
The pilots union also denied media reports the airline is seeking $275 million in additional cuts from its pilots. The union agreed to $1 billion in concessions last year to help Delta avoid a brush with bankruptcy.
The vote on the new union officers was postponed from Tuesday until no later than Aug. 31.