Fuel Prices Nudge Northwest, Delta into Bankruptcy
STEVE INSKEEP, host:
Two more airlines are flying under bankruptcy protection. Delta and Northwest Airlines are the latest to file for Chapter 11. In a filing submitted after the stock market closed, Delta listed debt totalling more than $28 billion. Minneapolis-based Northwest is in somewhat better shape but also decided to try to reorganize in bankruptcy. NPR's Jack Speer reports.
JACK SPEER reporting:
For the financially struggling airlines, there is one common reason for their decision to file for bankruptcy.
Mr. MICHAEL BOYD (Aviation Consultant): It's what happens when a key part of your cost mix goes up faster than you can accommodate for it, namely, fuel.
SPEER: Michael Boyd is an aviation industry consultant. He says for both Northwest and Delta, higher fuel costs have offset any additional revenues from increased passenger traffic. Delta says every one-cent rise in the price of jet fuel costs the airline another $25 million, so cash is dwindling. Michael E. Levine, a former airline industry executive at New York University, says that's why the airlines had to file now.
Mr. MICHAEL E. LEVINE (New York University): You need a lot of cash to file bankruptcy, and if your pockets are empty, you won't survive a Chapter 11. You'll end up in liquidation, because you need cash to pay your fuel bills. You need cash to do all sorts of things, including all the professional fees involved. And to take a big airline into bankruptcy takes a lot of cash.
SPEER: In a statement, Delta's CEO, Gerald Grinstein, called the bankruptcy filing `a necessary and responsible step to preserve value for shareholders, creditors and customers.' Delta is putting up all of its assets, including gates and planes, as collateral in exchange for about $2 billion in financing from major lenders.
Northwest is in a better cash position, so it won't have to do that. CEO Doug Steenland said in a conference call the decision to file Chapter 11 was difficult. However, he says that it allows the airline to complete its ongoing restructuring.
Mr. DOUG STEENLAND (CEO, Northwest Airlines): Physically, the Chapter 11 process will allow us to realize three major goals. First, a competitive cost structure that includes both labor and non-labor costs; second, a more efficient business model that allows us to continue to deliver superior choice and service; and third, a strengthened balance sheet with debt and equity levels consistent with long-term profitability.
SPEER: Steenland said the timing of Northwest's decision was also partly driven by a $65 million payment to the airline's pension fund that was due today.
Like many of the established airlines, both Delta and Northwest have long histories. Delta began as a crop-dusting firm in the 1920s; today the airline has more than 50,000 employees. Northwest, which employs about 40,000 people, was a mail carrier between Minneapolis and Chicago before starting up passenger service in 1927. Both airlines say they hope to emerge from Chapter 11 quickly, and hastened to reassure their customers they will continue normal business operations. The airlines say that will include offering frequent flier programs during the bankruptcy proceedings. Jack Speer, NPR News, Washington. Transcript provided by NPR, Copyright NPR.