Delta Air Lines’ shares tumbled into penny-stock territory Monday amid growing speculation that the nation's No. 3 airline will file for Chapter 11 bankruptcy protection as early as this week.
Delta stock tumbled 25 cents, or 23 percent, to close at 85 cents in heavy trading Monday on the New York Stock Exchange after The Wall Street Journal reported the carrier was in the latter stages of negotiations with its creditors over debt financing.
The bankruptcy filing could come as soon as Wednesday, according to an industry consultant who has been informed of the company's plans. The consultant, who spoke on condition of anonymity, said the filing was expected to come Wednesday afternoon but could be pushed to Thursday depending on when the financing is completed.
Delta likely will pledge the few remaining assets not already pledged as collateral for loans, the consultant said. “There is nothing unencumbered after this,” the consultant said.
Delta executives have warned for more than a year that the airline might be forced to seek protection after suffering losses of more than $10 billion since 2001.
Gimme Credit analyst Kimberly Noland said a bankruptcy filing was “almost inevitable” in the wake of Hurricane Katrina. The storm, which pounded Gulf Coast states on Aug. 29, damaged oil refineries and drove jet fuel prices higher.
A Delta spokesman said the company "has not made a decision about a possible Chapter 11 filing at this time."
Also on Monday, Delta asked its pilots’ union to accept new wage and benefit reductions to help address a financial crisis, a spokeswoman at the No. 3 U.S. carrier said.
“Today we presented to (pilots union) ALPA the pilot cost savings proposals that we believe are necessary to help address the severe financial challenge that the company and its people are facing,” Delta spokeswoman Chris Kelly said, referring to the Air Line Pilots Association.
The pilots agreed to $1 billion in annual concessions last year to help the airline restructure. But the company warned the union in August of dwindling cash.
The union could not immediately be reached for comment.
Several analysts said on Monday that they expect the cash-strapped carrier to file for Chapter 11 protection before Oct. 17, when the bankruptcy laws change, making it tougher and more expensive for companies to seek protection.
“It could be as early as this week, but it will definitely be before mid-October,” Fitch Ratings analyst William Warlick said.
The company's board of directors held a special meeting in New York Friday amid mounting financial pressure from debt and fuel costs, according to one source close to board members.
A source familiar with the situation said General Electric Co. and other creditors are in negotiations with Delta to finalize debtor-in-possession financing, which would fund the airline’s operations while it restructures.
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Delta’s assets, which include planes, parts, regional carrier Comair and airport gate slots, have a value of about $3 billion.
Atlanta-based Delta has struggled with rising oil prices and steep competition from low-cost rivals. In a filing with the Securities and Exchange Commission earlier this year, the carrier said it did not have enough cash to meet its needs in 2005.
Last week, Delta sold its regional unit, Atlantic Southeast Airlines, to feeder airline Skywest Inc. for $425 million, but several analysts said the move was did not raise nearly enough cash to save the carrier from a bankruptcy filing.
Last week, Delta announced plans to downsize its Cincinnati hub by eliminating 1,000 jobs, selling 11 wide-body jets and cutting capacity at the hub.
Delta also is saddled with $14 billion in debt.
“Delta’s problem is not labor, it’s debt,” said Michael Boyd, an aviation industry consultant. “They have achieved labor cuts, and can achieve more because they have only two unions. But until they can restructure their debt, they are in big trouble.”