Delta Issues Warning on Loss, Cash Flow

Delta Air Lines Inc. shares plunged 10% on Tuesday after the nation’s third-largest carrier warned it would record a substantial loss for the rest of the year and would need to file for bankruptcy protection if its cash reserves fall too low or lenders seek immediate payment of its debts.

Delta said in a Securities and Exchange Commission filing that it continued to face significant challenges because of high fuel prices and low ticket fares.

“Accordingly, we believe that we will record a substantial net loss for the nine months ending Dec. 31 and that our cash flows from operations will not be sufficient to meet all of our liquidity needs for that period,” the filing said.

Delta said that it was considering several moves to keep itself afloat, including more cost cuts and potential asset sales. But even that may not be enough. “There can be no assurance that we will be able to implement any of these strategies or that these strategies, if implemented, will be sufficient to enable us to maintain adequate liquidity,” the filing said.

Delta, which reported a nearly $1.1-billion loss in the first quarter, had $1.8 billion in unrestricted cash at the end of March. But the airline said in the filing that it expected that its cash level would be substantially lower by year-end if it can’t increase revenue, cut more costs, sell assets or restructure debt.

Delta said the financing agreements that it signed with American Express Co. and General Electric Co. last fall to help avoid a bankruptcy filing at that time require that it maintain certain cash levels.

While the airline did not specify those levels in the filing, it said failure to comply with the terms could result in the lenders demanding immediate payment of the money they are owed.

“If this were to occur, or if our level of cash and cash equivalents and short-term investments otherwise decline to an unacceptably low level, we would need to seek to restructure under Chapter 11,” Delta said.

Aviation jet fuel costs have risen about 50% in the last year for U.S. carriers. Delta, alone, spent $884 million on aircraft fuel in the first quarter, up 54% from $574 million a year earlier.

Some analysts have speculated that Delta will sell its feeder carriers Comair Inc. and Atlantic Southeast Airlines. The Atlanta-based company did not specify its plans in the filing.

Delta has significant financial obligations for the year. Among those are $450 million in pension funding requirements. Delta faces $3.1 billion in pension payments over the next three years. Chief Executive Gerald Grinstein has said he supports legislation that would give airlines the option of spreading the funding of their pension plans over 25 years instead of four.

Delta shares fell 33 cents to $2.97 on the New York Stock Exchange.