The number of U.S. airlines in bankruptcy has doubled, as Delta Airlines and Northwest Airlines both said they would seek protection from their creditors. United Airlines and US Airways are already in Chapter 11.
Delta was quick to issue a statement, saying the filing would not impact consumers. In fact, both airlines have said they will continue with regularly scheduled flights for the foreseeable future.
Deltas board of directors, in a unanimous decision, directed the company to take this action, saying it had determined that a Chapter 11 reorganization is in the best long-term interest of the company, its employees, customers, creditors, business partners and other stakeholders.
Delta said it expects to continue normal business operations today and throughout the reorganization process. Specifically, it expects to continue to:
• Operate its full schedule of flights worldwide;
• Honor tickets and reservations and provide refunds and exchanges as usual;
• Maintain the SkyMiles program and other customer service programs;
• Provide amenities like Crown Room Clubs and international lounges in select cities;
• Provide employee wages, healthcare coverage, vacation, sick leave and similar benefits without interruption; and,
• Pay suppliers for goods and services received during the reorganization process.
The action we have taken is a necessary and responsible step to preserve Deltas value for our creditors, customers, employees, business partners and other stakeholders as we address our financial challenges and work to secure our future, said Delta CEO Gerald Grinstein.
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.
The main impact, in the short term, is likely to be felt by employees and investors. Bankrupt airlines normally wring more concessions from their employee unions, and investors sometimes see the value of their stock holdings fall to zero.
The bankruptcies may be seen as another big step in the rapid evolution of the airline industry. The biggest U.S. airlines have posted losses of $38.2 billion since 2000 for two reasons; stiff competition from discount carriers such as Southwest Airlines and Jet Blue and soaring costs. A 58% rise in jet-fuel prices this year, boosted in part by Hurricane Katrina, made it even harder to match discount fares.
Delta has been trying to avoid bankruptcy for over a year, barely heading off a Chapter 11 filing last October. It gained some breathing room after extracting steep pay and benefit cuts from its pilots union.
Northwest is currently trying to renegotiate $1.1 billion in labor savings, sparking a strike by its mechanics union employees. Northwest telegraphed its bankruptcy intentions earlier this week when it missed a scheduled $18.7 million payment to Mesaba Aviation. It has until September 20 to make that payment.