United Airlines and US Airways in recent weeks each laid out the most specific timetables to date for the completion of their respective bankruptcy reorganizations. Meanwhile, Delta and Northwest airlines appear the most likely candidates for new Chapter 11 filings, unless they can improve deteriorating financial performance.
United told the bankruptcy court that it intends to submit its plan of reorganization "on or about Aug. 1." Glenn Tilton, UAL president, CEO and chairman, said that the court filing "represents perhaps the most significant step forward in our restructuring." United said its proposed timeline keeps it "on track" to complete bankruptcy proceedings this fall.
The company asked the court to schedule a hearing in early September to approve its disclosure statement.
"We believe that the company will exit bankruptcy late this year or early next year with a cost per available seat mile, excluding fuel, of under 7.5 cents, which will put continuing pressure on the other legacy carriers to reduce costs," Calyon Securities analysts said in a recent research note.
United told the bankruptcy court that its net loss in May was $93 million. Excluding fuel, however, unit costs declined 3 percent and unit revenues inched upward 1 percent.
For its part, United partner and fellow bankrupt carrier US Airways said its net loss in May was $39.7 million on $567.2 million in passenger revenues. The airline this month filed a reorganization plan with the bankruptcy court overseeing its Chapter 11 case. Along with the plan, US Airways filed a disclosure statement related to its planned merger with America West Airlines
(see story). The court scheduled a hearing for Aug. 9 to approve the disclosure statement.
Meanwhile, US Airways last month received bankruptcy court approval to amend a financing plan with General Electric and to continue tapping cash collateral that had been set aside for a loan backed by the Air Transportation Stabilization Board. This month, the company also secured a sixth financial backer for its plan of reorganization when Tudor Investment Corp. committed $65 million in equity, in exchange for a stake in the renewed company upon emergence from bankruptcy.
"Investors continue to find great potential in our proposed merger with America West Airlines," said US Airways president and CEO Bruce Lakefield.
The airline this month also activated an employee incentive plan, similar to Continental Airlines', that provides cash bonuses to all workers when the company achieves on-time performance and baggage-handling goals.
According to the most recent Air Travel Consumer Report issued by the U.S. Department of Transportation, US Airways' on-time performance of 76 percent for the 12 months through May ranked ninth among the 12 major carriers. US Airways in both April and May mishandled roughly 10 bags per 1,000 passengers, placing it last among major carriers and 19th among all 20 airlines covered by DOT's report.
Meanwhile, Delta Air Lines continues its efforts to restructure outside of bankruptcy court but also continues to warn of a possible Chapter 11 filing amid worsening financial performance. The company's net losses since the beginning of 2001 total roughly $10 billion.
"Delta's unrestricted cash and cash equivalents and short-term investments have declined significantly since Jan.1, 2004," the carrier said in a recent Securities and Exchange Commission filing. "These results underscore Delta's urgent need to make fundamental changes in the way it does business."
In fact, Calyon Securities analysts recently said Delta "faces the greatest threat of having to file for Chapter 11," given low projections for cash reserves. "Delta remains in real danger of default if it cannot raise additional cash going into the fall season through the monetization or sale of assets."
According to Calyon, Delta "missed a great opportunity by not going along with a recent major price increase in which the carrier would have had to raise its pricing cap over $499 for a domestic ticket." The fare caps "cannot be justified at close to $60 a barrel," though analysts acknowledged Delta faces intense competition from the likes of AirTran and JetBlue.
Subsequently, Delta last week raised the fare caps by $100
(see story).Northwest Airlines also said it would be forced to consider a Chapter 11 filing absent labor cost reductions and pension-funding relief. The company is in discussions with several labor groups, though an impasse with the Aircraft Mechanics Fraternal Association in particular has grabbed headlines.
AMFA and airline management this month asked the National Mediation Board for a release from contract negotiations, which, if granted, would lead to NMB seeking binding arbitration. Should those efforts fail, NMB then would set the clock ticking on a 30-day cooling-off period. Should the cool-off period expire, AMFA workers would be allowed to strike.
In the meantime, AMFA members are voting to authorize such a course of action, should union leadership deem it necessary. The union is scheduled to count the ballots tomorrow.
"We believe that the NMB will release the two sides into a 30-day cooling-off period by the end of this month, so that a contract can be forthcoming by the end of the summer," said Helane Becker, analyst with The Benchmark Co. "Northwest cannot afford to wait much longer to reach an agreement because its losses continue to be substantial, and with no revenue relief in sight, we do not forecast profits anytime soon."
Other analysts said labor union concessions are more likely to occur than a workers strike.
"We continue to believe that the probability of a strike is slim, say below 20 percent," said J.P. Morgan Securities analysts in a recent research note.
Nevertheless, Standard & Poor's Ratings Services last month lowered Northwest's credit ratings.
"The downgrade was based on expected heavy losses and negative cash flow this year, the airline's inability thus far to secure needed labor cost concessions, and sizable upcoming debt and pension obligations," said S&P analyst Philip Baggaley.