Delta Air Lines' Chief Financial Officer on Wednesday said filing for bankruptcy was not part of the cash-strapped carrier's transformation plan, but it is a possibility he cannot entirely rule out.
Michael Palumbo said the Atlanta-based carrier would like to complete its transformation plan outside bankruptcy court. The plan targets more than USD$5 billion in annual savings by 2006.
"Our plan is designed and best executed outside the statutory process," Palumbo told analysts. "But I could not stand here in front of you and say... we cannot fiducially consider the alternative."
Delta in May said it won't generate enough cash to meet its liquidity needs this year, raising new alarms the airline could have to file for bankruptcy in the next few months.
But General Electric's finance arm last week agreed to relax certain requirements under a credit agreement, a move seen as allowing the carrier to stave off a bankruptcy filing this year.
Delta avoided a brush with bankruptcy last year when it lined up USD$1.1 billion in financing from General Electric and American Express. It also announced a few months ago it would cut 7,000 jobs, or 12 percent of its work force, and reduce pilots' pay by a third.
Palumbo said Delta's transformation plan is "on track," but the airline still faces several challenges. "Quarter over quarter, fuel price increased by 49 percent, domestic yield fell by about 9 percent," he said. "Yields continue to be under pressure," he added, referring to low airfares stemming from tough competition in the airline industry.
"The current estimate for fuel prices remain significantly higher than those we had planned for the rest of 2005," Palumbo said. "And increased interest costs as a result of our overall debt has also become a burden for us."
Delta, which has roughly USD$13.9 billion in debt, posted a 2004 net loss of USD$5.2 billion. It is one of several US carriers that have faced cash crunches in the past two years. Two of its largest rivals, United Airlines and US Airways are operating under Chapter 11 protection.
"The challenges certainly remain," Palumbo said. "And we continue to evaluate opportunities to further reduce cost and manage spending."
US airlines have lost more than USD$30 billion since the September 11, 2001 attacks.
