Airline Bankruptcy Filings May Be Soon

Northwest Airlines Corp. and Delta Air Lines Inc. will probably file for Chapter 11 bankruptcy protection in mid-September, a month before a new, more restrictive bankruptcy law goes into effect, bankruptcy experts and airline insiders say.

The airlines are expected to delay any action until around Labor Day weekend to avoid distressing employees during the busy summer travel period.

Northwest and Delta continue to post significant losses while trying to cut costs and adjust to record high fuel costs.

Last week, Northwest reported a second-quarter loss of $225 million, compared with a loss of $182 million for the same quarter in 2004. The airline is trying to get its employees to agree to $1.1 billion in pay and benefit cuts.

In a conference call with reporters last week, Douglas Steenland, Northwest’s chief executive, refused to speculate if or when the airline would have to file for bankruptcy protection. But he said a new bankruptcy law taking effect Oct. 17 would be “one of the factors” in the decision-making process.

Delta’s chief executive, Gerald Grinstein, last week told employees in a memo that the airline’s efforts to cut about $5 billion were not enough to avoid a possible bankruptcy filing. The memo came after Delta reported a second-quarter loss of $382 million. Delta’s lawyers were preparing to file for bankruptcy last October when its pilots agreed to wage and benefit cuts of about $1 billion a year.

Delta’s shares in recent days have sunk near to the record low of $2.74 reached in May. The stock closed at $2.97 on Monday, up 1 cent.

Northwest’s shares, which hit a record low of $4.13 on July 7, closed a $4.91 on Monday, up 26 cents.

Congress passed the new bankruptcy law in April in part to force companies to reorganize more quickly.

The new regulations were drawn up against the backdrop of two current airline bankruptcy cases: United Airlines’ parent company, UAL Corp., and US Airways Group Inc.

Under the new law, companies in Chapter 11 are prohibited from paying retention bonuses to executives, except in cases where the executives have proved they have job offers elsewhere. The provision was put in place to stop companies from taking money from employees hit by wage and benefit cuts to enhance packages for managers, said Lynn LoPucki, a law professor at UCLA.

The bankruptcy law also will force companies to reorganize and emerge from Chapter 11 protection at a speedier pace. Companies will have up to 18 months of a so-called exclusivity period during which they must submit a reorganization plan to the court and are protected from takeover attempts.

United, which has been in bankruptcy for 2 1/2 years, has not yet submitted a reorganization plan and has asked for several extensions of its exclusivity periods. The airline has said it plans to emerge in the fall.