Their bankruptcy filings behind them, Delta and Northwest began a lengthy and costly road to recovery yesterday that will likely include...
Their bankruptcy filings behind them, Delta and Northwest began a lengthy and costly road to recovery yesterday that will likely include cutting employee rolls, pensions and routes.
In the end, if they survive, the nation’s third- and fourth-largest airlines will be smaller and may look more like the discount rivals that helped send them into bankruptcy.
That perspective by analysts, bankruptcy experts and academics was underscored yesterday as Delta Air Lines and Northwest Airlines sought to reject certain aircraft leases.
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In Delta’s case, it also asked a New York bankruptcy judge to allow it to abandon some properties and prevent utilities from turning off its power.
“What are they going to look like? They are going to look like Southwest or JetBlue,” said Manchester, N.H., bankruptcy and restructuring expert Dan Sklar, referring to the low-cost carriers.
David LeMay, an attorney who worked on Continental’s bankruptcy in the early 1990s, said that airline raised cash in bankruptcy by selling a valuable trans-Pacific route and a terminal it was building at LaGuardia airport in New York.
“I’m sure that both Delta and Northwest will be looking very, very hard at what is absolutely essential to keep and what can be sold,” he said.
In Northwest’s case, the airline will likely press pilots to change rules that limit its regional passenger service, said analyst Ray Neidl at Calyon Securities in New York.
Regional flying is important to both carriers. But Northwest, with its large Midwest presence, does more flights at small airports than any other carrier. Shifting more of those flights to its regional partners will help Northwest get profitable again, Neidl said.
Delta will change its system even more than Northwest, Neidl said. “They might try to become more international-oriented. Domestically, I’m thinking they will shrink.”
Delta also will likely look for savings at its in-house discount carrier, Song. Neidl said Delta has claimed Song is already cheap to operate, but others haven’t been so sure.
“If it’s not cheap now, I believe Delta will make it cheap,” he said.
To do that, cuts in jobs, pay and benefits are almost certain.
The chiefs of both companies said after their filings Wednesday that more job cuts are expected.
Employee pensions also are in danger.
In court yesterday, Northwest asked for permission to pay $55 million to vendors for services during its mechanics strike, the first acknowledgment of the costs of the strike, which began Aug. 20.
At a separate hearing, Delta revealed Fifth Third Bank had earlier in the day frozen Delta accounts containing $35 million.
Delta spokeswoman Chris Kelly said the carrier believes the bank action was inappropriate, but added that Delta was able to work out an agreement to unfreeze the accounts. A bank spokeswoman did not immediately return a call seeking comment.
Northwest said in a bankruptcy court filing it wants to return 13 aircraft immediately, and it has designated 102 more for potential removal. Northwest said it flies 433 aircraft.
Twenty-eight Boeing 757-200s are either parked now or proposed for abandonment to the leaseholders, according to the filing.
As for customers, some industry observers believe service will be improved at both airlines after the bankruptcy process concludes.
“Flying might not be as convenient, but overall I don’t think customers are going to notice that much difference, and two or three years from now they may find they have better service — service with a smile,” said William Rochelle, a New York bankruptcy lawyer.
In the end, there even could be mergers involving the big legacy carriers, though some believe regulatory approval could make that proposition difficult.
But with persistently high fuel costs, some believe consolidation is inevitable.
“We just have one catastrophe after another in the industry,” Rochelle said. “I’m not sure any of them have the capacity to respond on their own.”