Delta Air Lines files for Chapter 11 Reorganization

Delta Air Lines and its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Delta said it expects to continue normal business operations today and throughout the reorganization process. Specifically, it expects to continue to:

- Operate its full schedule of flights worldwide; 
- Honor tickets and reservations and provide refunds and exchanges as usual; 
- Maintain the SkyMiles program and other customer service programs; 
- Provide amenities like Crown Room Clubs and international lounges in select cities; 
- Provide employee wages, healthcare coverage, vacation, sick leave and similar benefits without interruption; and, 
- Pay suppliers for goods and services received during the reorganization process.

“The action we have taken is a necessary and responsible step to preserve Delta’s value for our creditors, customers, employees, business partners and other stakeholders as we address our financial challenges and work to secure our future,” said Delta CEO Gerald Grinstein. “Delta is open for business as usual and will continue normal operations throughout the reorganization process. Our customers can be confident that they remain our number one priority and that their travel plans and SkyMiles are secure.”

To help support its business during the Chapter 11 proceedings, Delta has obtained a commitment for $1.7 billion in debtor-in-possession (DIP) financing from GE Commercial Finance and Morgan Stanley as Co-Lead Arrangers. The commitment includes up to $1.4 billion of financing on an interim basis pending final approval of the full DIP financing at a later date.

In addition to the commitment for the new $1.7 billion DIP financing, which replaces approximately $980 million in secured pre-petition financing from GE Commercial Finance and American Express, Delta has an agreement in principle with American Express to provide the airline with an additional $350 million of secured financing. Altogether, Delta’s post-petition financing arrangements now total up to $2.05 billion, an increase of approximately $1.07 billion from the company's pre-petition secured credit facilities. 

“Delta’s financial problems are severe, but by no means insurmountable,” Mr. Grinstein said. “We are optimistic about our future because we have been working for months on a business plan that builds on the substantial improvements we’ve already made and demonstrates that Delta can return to profitability once the company is able to restructure appropriately.”

Delta plans to use Chapter 11 to reconfigure its fleet and network footprint in a manner that will enhance its revenues. First, Delta plans to simplify and streamline its fleet by targeting four aircraft types to be removed by the end of 2006, so that only seven mainline aircraft types will remain. Second, Delta plans to deploy smaller aircraft on many of its routes so that it utilizes the proper-sized aircraft for the route it is flying. Third, Delta will continue to right-size its hub operations. Fourth, Delta plans to increase its capacity on international routes with greater profit potential.

In addition to these substantial network and operational improvements, Delta has determined that further job reductions and changes to employee pay and benefits are a necessary component of its business plan. The company said it will be communicating to employees more details about these changes as early as next week.

On September 12, Delta presented the union that represents Delta pilots, the Air Line Pilots Association (ALPA), with pilot cost-saving proposals necessary to help address the company’s severe challenges.

Given its financial situation and the need to preserve as much cash as possible for its operations, Delta does not plan to make the qualified defined benefit plan funding contributions soon due. “Missing contributions does not mean that our qualified plans stop paying monthly retirement benefits or that we have initiated the process to terminate the plans,” Grinstein said. 

The company is continuing to pursue pension reform legislation that might make the plans more affordable. However, because of Delta’s growing financial pressures, there can be no guarantees – even with pension reform – about the future of Delta’s qualified defined benefit pension plans. “Ultimately, what we can afford in the future airline business environment, as well as the nature of any legislation, will determine what is possible,” Grinstein asserted.

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