Delta Plan Causes Alarm

Delta Air Lines Inc.’s plan to restructure some of its debt outside of bankruptcy has raised concerns among credit analysts who believe the move could be tantamount to defaulting on the money the struggling carrier owes.

Standard & Poor’s on Thursday dropped Delta’s credit rating to a lower degree of junk status and warned that the rating could be lowered to default.

S&P; is concerned that a swap of debt for equity in the company could be viewed as coercive if the debt holder has no other choice and ends up receiving less financial consideration than originally owed.

Atlanta-based Delta’s low credit rating hampers its ability to raise additional financing.

Delta’s debt stands at more than $20 billion.

“Ratings could be lowered if Delta does not make rapid progress toward significant cost reductions in its negotiations with pilots, or if there are further moves toward out-of-court debt restructuring,” S&P; analyst Philip Baggaley said.

In trading Thursday, shares of Delta fell a penny to $4.06 on the New York Stock Exchange.

On Thursday, Delta met with its pilots union behind closed doors to discuss the company’s proposal. Company and union officials would not provide any concrete details on the meeting.

Delta was expected to address the pilot union’s request for an equity stake, either through stock options or profit-sharing, in the company. Chief Executive Gerald Grinstein has said the company is working on a rewards program that would provide incentives to employees for good performance. At the same time, he has said his turnaround plan will mean more job cuts at the airline, though he has not provided numbers.

Also Thursday, US Airways Group Inc. said a second Chapter 11 bankruptcy filing remains a “real possibility” unless the carrier’s workers “quickly” agree to additional concessions.

In a letter to employees, US Airways Chief Executive Bruce Lakefield said that although a second Chapter 11 filing could occur, “talk of an imminent shutdown, a disruption of service or impending liquidation is simply not true.” The letter responded to published comments by Chairman David Bronner that without new labor agreements, the airline can’t survive.