Despite Full Flights, Carriers Face Financial Woes

Delta and Northwest may be the next major airlines to seek Chapter 11 bankruptcy protection. Despite record numbers of travelers and labor cost concessions, the airlines are losing millions of dollars each day due to high fuel prices.

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STEVE INSKEEP, host:

The business news starts with airlines struggling to avoid bankruptcy. Some airlines are losing millions of dollars every day due to high fuel prices. They're losing money despite record numbers of travelers and cost concessions from labor unions. In a moment, we'll have more on which airlines face a strike deadline this weekend. We'll start our coverage with those dramatic increases in the price of jet fuel and the way they're eating up revenue. NPR's Jack Speer reports.

JACK SPEER reporting:

The price of jet fuel has risen more than 50 percent since the beginning of the year, and that extra cost, says analyst Ray Neidl of Calyon Securities, is the difference between making money and losing money for the airlines.

Mr. RAY NEIDL (Calyon Securities): If we had $45-a-barrel fuel instead of $60-a-barrel fuel, these airlines would be somewhat recovering. They wouldn't be prosperous, but they'd be recovering. But that's like saying if pigs had wings, they could fly. We got to live with the reality of $65-a-barrel oil right now.

SPEER: High oil prices are hitting every carrier very hard, with the possible exception of Southwest. Because of its financial strength, Southwest was able to lock in lower fuel prices several years ago. United and US Airways have cut their labor costs dramatically, but are still struggling to emerge from bankruptcy. Delta and Northwest could join them in Chapter 11, according to Richard Aboulafia, an aviation industry consultant with the Teal Group.

Mr. RICHARD ABOULAFIA (Teal Group): Right now you've got a situation where United and US Airways are clearly in the worst shape. US Airways could be rescued by America West. United? Nobody knows. Too big to fail, a classic situation. American and Continental relatively healthy. And then in the middle you've got Delta and Northwest, and that's where the real uncertainty is.

SPEER: Adding to the climate of uncertainty for Delta, a potentially large payment the airline will have to make to its credit card processor. The Atlanta-based airline says its finances have eroded so rapidly that the card processor is now demanding money in advance. Again, analyst Ray Neidl.

Mr. NEIDL: There's usually a 30-day turning-over period for credit card payments, and the credit card processors and companies want some kind of assurance that, even though it's only a 30-day turnover period, they get paid, which means the company has to pay up front. Normally, they don't have to do that.

SPEER: Any big cash payments would eat into Delta's reserves. There are also worries about possible early retirement of some of the airline's pilots. Michael E. Levine is a former airline industry executive now at New York University. He says despite the airline's sale this week of its regional carrier for more than $400 million, Delta will probably have little choice but to file Chapter 11 bankruptcy.

Mr. MICHAEL E. LEVINE (New York University): Delta has a whole host of problems related to aircraft that it doesn't need, infrastructure commitments that it can't meet, pension obligations it can't meet, a lot of debt. I just don't see a way out.

SPEER: Levine says Delta and other airlines expecting any further help from the federal government are likely to be disappointed. Further hastening possible Chapter 11 filings are changes in the bankruptcy laws which take effect in October and are less favorable to the airlines. Delta's stock has fallen to the point the airline is being removed from the Standard & Poor's 500 Index today. It's being replaced by a California-based real estate investment trust. Jack Speer, NPR News, Washington.

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