Following on this report from about a month ago, this Wall Street Journal ($) article reports this morning that Delta Airlines will pull the plug this week and file a chapter 11 reorganization case. Let’s hope that this prediction on the timing of the filing of the chapter 11 case is a bit better than this one, and that Delta’s stay in chapter 11 is bit shorter and more pleasant than this one.
Delta is certainly a prime candidate for reorganization. The airline has lost almost $10 billion since 2001, has debt of about $20 billion and expensive pension obligations. As of the end of this year, Delta faces $470 million in maturing debt, $550 million in interest payments, $460 million in operating lease payments and $135 million in pension payments. Not many companies have a spare $2 billion in cash laying around to spread around such obligations.

Meanwhile, Houston-based Continental Airlines announced late last week that it expects to save about $300 million in 2005 from employee compensation reductions, but still expects to record a “significant loss” for the year. The company also noted that record high fuel prices continue to offset a continued improvement in revenue trends. Continental had a net loss of about $86 million for the first six months of 2005, but the company continues to maintain decent liquidity levels as it anticipates ending the third quarter with $1.9 billion and $2 billion in unrestricted cash and short-term investments and to end the year with a cash balance of about $1.5 billion.
Interestingly, Continental also announced that Boeing Co. has agreed to provide backstop financing for Continental’s purchase of new Boeing aircraft to support its international operations. Such credit enhancements are not typically necessary for companies that are not having trouble tapping the usual asset-based credit markets.