Delta Reports $2 Billion Loss on Charges

ATLANTA – Delta Air Lines (DAL), struggling to secure major cost cuts to avoid a possible bankruptcy, Monday posted a $2 billion quarterly loss due to a spike in fuel prices and a one-time charge related mostly to taxes.

But shares of the No. 3 U.S. carrier rose 8 percent as the company said it had more than $2 billion in cash and was making progress in identifying ways to cut costs.

"The hole we must fill is considerably deeper today than it was a year ago, and the hole grows deeper every day," Chief Executive Gerald Grinstein said in a conference call in which he emphasized the need for "bold and decisive initiatives."

"The changes we make must be structural and permanent," he said.

Grinstein said the company review he launched in January, which he is expected to complete by late August, is in the final planning stages.

The Atlanta-based carrier said its second-quarter loss was $1.96 billion, or $15.79 a share, including the charge. A year earlier, it reported a profit of $184 million, or $1.40 a share, including a hefty one-time government aid payment.

Delta took a $1.65 billion non-cash charge in the quarter — $1.53 billion related to deferred income taxes and $117 million related to its pilot pension plan as more pilots than usual retired.

Grinstein said the cumulative weight of pressures facing the airline grows heavier every day.

Fuel prices spiked 54 percent in the quarter while yields, or average fares, continued to erode. Delta, which has had six credit rating downgrades since May 2003, faces increasing competition from low-cost rivals and said it does not expect a revenue recovery any time soon.

Delta is in the midst of negotiations with its pilots, its only major union and the highest-paid pilots in the industry. The union plans to present a new proposal of concessions to management soon, and the head of the union told Reuters recently he was looking to increase pilot productivity.

Working Toward Change

Delta formed a new seven-member leadership team during the quarter after seeing its top three executives replaced this year. Plans aimed at turning its finances around have resulted in $1.8 billion in benefits over the past 18 months.

Analysts called the results good relative to expectations, but poor overall.

"You've got a guy at the top now who is hands on, so I firmly believe that the problems are being dealt with," said industry consultant Michael Boyd of the Boyd Group. "The pilot group is pretty loyal to their company, and they'll make something happen."

Excluding the charge, Delta's loss was $312 million, or $2.55 a share. Analysts expected a loss of $2.41 a share, according to Reuters Estimates.

Without the federal aid, Delta's year-ago loss was $237 million, or $1.95 a share.

Delta ended the quarter with $2.3 billion in cash, of which $2 billion was unrestricted. Wall Street has kept a close eye on the carrier's cash position, given many analysts expect Delta to run into a liquidity crisis by fall or winter if it cannot slash costs dramatically.

Delta also said it has amended an existing third-party financing agreement. The deal resulted in an incremental $150 million of liquidity and a refinancing of $230 million of secured debt originally due in 2006.

The carrier said it expects fuel costs to be about $680 million higher this year than in 2003, with $510 million of the increase due to higher oil prices.

"People expected the news to be worse, and it came out about in line with what it's been the last few quarters," said Alan Sbarra, transportation management consultant at Unisys R2A.

Ray Neidl, analyst at Blaylock & Partners, called the stock's move higher a selling opportunity.

Delta shares closed up 44 cents, or 8 percent, at $5.94 on the New York Stock Exchange (search) after jumping as high as $6.35 earlier in the day.