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Delta, Northwest File for Bankruptcy Protection

ROBERT SIEGEL, host:

Two of the nation's largest airlines filed for bankruptcy today. Delta and Northwest had been preparing their separate filings for weeks, and they filed within minutes of each other this afternoon. Two other airlines, United and US Airways, are already in Chapter 11, so that makes four of the nation's top seven carriers that have had to seek protection from their creditors. NPR's Jack Speer reports.

JACK SPEER reporting:

With today's filing, the second-, third- and fourth-largest airlines are now in Chapter 11. Bill Warlick is an airline industry analyst with Fitch Ratings. He says in the case of Delta, the airline eliminated thousands of jobs, sold assets and slashed wages, but simply ran out of options.

Mr. BILL WARLICK (Fitch Ratings): The revenue environment, interestingly, has strengthened somewhat this year, and fares are actually up year over year. But unfortunately, the energy cost spike has been so dramatic that all of the carriers find themselves looking at continuing losses going into 2006.

SPEER: As part of its bankruptcy filing, Delta pledged as collateral virtually all of its assets--planes, spare parts and gates--to get just over $2 billion in financing it needs to restructure. The airline has also met with its pilots union to request a further round of wage concessions on top of the 33-percent pay cut pilots agreed to just nine months ago.

Northwest surprised some by filing today. It had a larger cash cushion, but it, too, has been hit by higher fuel prices. Northwest is in the middle of a strike by its 4,400 mechanics and recently began offering permanent jobs to replacement workers.

And also hanging over all the older established airlines is another problem: What to do about their billions of dollars in unfunded pension liabilities. Michael E. Levine is a former airline industry executive currently at New York University.

Mr. MICHAEL E. LEVINE (New York University): They will have to be adjusted one way or another. They'll either be adjusted over a very long time, or they'll be adjusted by being dumped on the government in bankruptcy proceedings, in which case they'll have a mini version of the savings and loan crisis.

SPEER: Congress has proposed legislation to help the airlines deal with their pensions. Delta has about $5 billion in unfunded liabilities. Robert Mann is an airline industry analyst. He says another reason Delta's in trouble is the airline has lagged behind other carriers in making the tough choices needed to stay competitive.

Mr. ROBERT MANN (Airline Industry Analyst): They simply have not pursued a restructuring of their costs as rapidly as other network carriers have, whether it was consensually, as in the case of American and Continental, or whether it was via bankruptcy in the case of US Airways and United. So they are kind of late to the restructuring party and have lost $10 billion in the last four years.

SPEER: And some of the troubled airlines face another deadline that is forcing the issue: A new bankruptcy law set to go into effect a month from now that requires companies to come up with a plan to get out of bankruptcy within 18 months. United has spent nearly three years coming up with its plan. With both Northwest and Delta now in Chapter 11, roughly half of all passengers aboard US flights will be flying on airlines that are officially bankrupt. Jack Speer, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

Jack Speer
Jack Speer is a newscaster at NPR in Washington, DC. In this role he reports, writes, edits, and produces live hourly updates which air during NPR programming.