By Ed Brock
Just around close of business Wednesday, Delta Air Lines made it official.
The airline, one of the largest employers in Clayton and Henry counties, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. It's a move that could lead to further job reductions and pay cuts and may even threaten the company's pension plan.
But Delta CEO Gerald Grinstein said this is far from the end for the nation's third largest air passenger carrier is down but far from out.
"The action we have taken is a necessary and responsible step to preserve Delta's value for our creditors, customers, employees, business partners and other stakeholders as we address our financial challenges and work to secure our future," Grinstein said in a statement. "Delta is open for business as usual and will continue normal operations throughout the reorganization process. Our customers can be confident that they remain our number one priority and that their travel plans and SkyMiles are secure."
As part of the bankruptcy filing Delta expects to receive a total of $2.05 billion in financing, including $1.7 billion in debtor-in-possession financing from GE Commercial Finance and Morgan Stanley and $350 million in secured financing from American Express.
Delta plans to continue its full schedule of flights world wide, will honor its pre-bankruptcy obligations to customers and its SkyMiles frequent-flyer program.
Last year Delta announced a restructuring plan aimed at saving $5 billion. That restructuring included the termination of 7,000 jobs, changes of hub operations at Hartsfield-Jackson Atlanta International Airport and elimination of the Dallas/Fort Worth airport as a hub and the new "Simplifares" domestic fare system.
By June of this year Delta was ahead of schedule in meeting its target, according to Grinstein. Then "persistent record-high fuel costs at unpredicted and unprecedented levels" and "downward pressure on revenues in the airline industry substantially outpaced and masked these benefits," according to Grinstein's release.
Now the restructuring plan includes simplifying and streamlining Delta's fleet by eliminating four aircraft types. The airline will also use "proper-sized," smaller planes for some routes, will "right-size" its hub operations and increase its capacity on international routes that offer more profit.
Those are the kind of changes Bud Miller, dean of the Clayton State University School of Business, has been saying the company needed to make. Delta, along with Northwest Airlines which was also expected to file bankruptcy on Wednesday, are long-established airlines with infrastructure and cost structures that are no longer competitive.
"They just can't keep their costs down," Miller said.
Miller said the long-term benefit of the bankruptcy filing would be the company's survival.
"I think the near term is not good, but I think the long term is good," Miller said.
The statement also referred to the fact that "further job reductions and changes to employee pay and benefits are a necessary component of its business plan," but did not specify what reductions and changes may be made. The company would provide more information to its employees next week.
On Monday Delta sent its pilots' union, the Air Line Pilots Association, a cost-saving proposal. The company has been in negotiations with the union over salary cuts for some time and that has been identified as a major cost expense.
Union spokeswoman Kelly Collins said the union's Master Executive Council will begin considering the proposal on Monday but she would not go into detail about what was in Delta's proposal.
Delta also will not make the qualified defined benefit plan funding contributions that are due soon, but that doesn't mean they plan to stop paying retirement benefits, Grinstein said. The company is pursuing legislation that may make the retirement plans more affordable, but said "there can be no guarantees."
"Ultimately, what we can afford in the future airline business environment, as well as the nature of any legislation, will determine what is possible," Grinstein said.
Delta is the number one taxpayer in Clayton County, according to Michael Smith, Clayton County chief staff attorney.
It has $21,573,064 in tax liability for real estate, personal, motor vehicles and airplanes located in Clayton County. Its total assessed value of property is $806,500,954.
Smith said bankruptcy protection for Delta could delay the collection of the company's taxes.
He said newspaper reports from Denver, Col. indicated that governments there still had not collected taxes from United Airlines, which filed for bankruptcy protection in 2003.
"It's possible it could be up to a couple of years," Smith said.
But County Commission Chairman Eldrin Bell said the county is prepared and shouldn't face any catastrophic cash flow problems.
To safeguard the county from any financial crisis, he said he wants to continue maintaining the county reserve fund and cutting down on budget expenses.
"On all levels, we are trying to tighten the budget in effort to avoid any adverse impact from whatever decision Delta has to make," Bell said.
Grinstein concluded his statement by saying the company would rise to meet new challenges and "our pride in this great company and in one another will not be shaken."
Hours before Grinstein made that statement, Laurie Langley was at Hartsfield-Jackson preparing to board a Delta flight that would take her home to Florida. She has been very concerned about Delta's financial problems, but said her husband was even more concerned.
"He's concerned because it's the airline he chooses to fly," Langley said.
Delta stock which traded as high as $71.56 in 1999, closed Wednesday at 85 cents a share. It closed on Monday at $1.41 but continued to drop amid the speculation of bankruptcy.
Delta's announcement Wednesday came after the New York Stock exchange had closed.
Staff writer Justin Boron contributed to this story.