A US bankruptcy court on Wednesday gave Delta Air Lines Inc. the approval to exit bankruptcy at the end of this month. Delta Air Lines, the third- largest US carrier, won approval of its restructuring plan, clearing the way for it to pay creditors and exit bankruptcy next week after 19 months staying under court protection. Delta Air Lines is now set to re-enter an extremely competitive market in which its success largely depends on operating with a meek labor force and expanding its international flights. The US airline had spent nearly 19 months in a struggling restructuring that cut 6,000 jobs and slashed $3 billion in costs.
According to US law, Chapter 11 allows struggling American firms protection from their creditors while they reorganize their finances. It had filed for bankruptcy protection in September 2005 after witnessing losses of $7.5 billion between 2001 and 2005. It also accumulated $19 billion of debt in the same period. High costs and competition, as well as the impact of 9/11 were blamed for its miserable position.
New shares of Delta will start trading from May 3 with a stock-market value that may be the second highest among US airlines, Chief Financial Officer Ed Bastian said. While not revealing the exact figure he further added, ‘I do not think there is a company that has come out of bankruptcy with a higher market cap’. However, Blackstone Group, financial adviser of Delta, has expected the fresh shares at $9.4 billion to $12 billion.
Airline industry experts are of the view that Delta was not likely to try to partner with another carrier in the near term. Industry watchers had earlier hypothesized earlier that Delta might join with Northwest Airlines Corp., which filed for bankruptcy the same day Delta did. However, Delta’s success will mainly driven by its ability to expand its international routes, and its extension was by no means is guaranteed. The international air travel marketplace has now become intensely competitive, especially given the possibility of more competition on routes across the Atlantic and to China.
In the meanwhile, Delta’s financial condition has improved significantly, with the company projecting a 2007 pretax profit of $816 million, excluding special charges and reorganization costs.
