Delta Air Lines, which is struggling to avoid a bankruptcy filing and facing persistently high fuel costs, said yesterday it is selling...
ATLANTA — Delta Air Lines, which is struggling to avoid a bankruptcy filing and facing persistently high fuel costs, said yesterday it is selling feeder carrier Atlantic Southeast Airlines (ASA) to SkyWest for $425 million in cash.
Delta, the third-largest U.S. carrier, said the proceeds will be used for general purposes and to pay down $100 million of debt under its loan agreement with GE Commercial Finance and other lenders.
The sale, subject to regulatory review, is expected to close in September.
Delta shares fell 22 cents, or 13.7 percent, to close at $1.39 in extremely heavy trading yesterday. The close, Delta’s lowest in at least 43 years, dropped the company’s market capitalization to roughly $200 million.
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In after-hours trading following the ASA announcement, Delta shares surged more than 27 percent.
In another development, Standard & Poor’s said that after the close of trading Thursday it will replace Delta with Public Storage on the S&P 500 index. Public Storage is a real-estate investment trust based in Glendale, Calif. Heavy-equipment manufacturer Caterpillar will replace Delta on the S&P 100 index.
In a quarterly filing yesterday with the Securities and Exchange Commission, Delta said that even with the sale of ASA and other financing deals it is trying to work out, it could still be forced into bankruptcy. It noted that prior loan agreements with GE and American Express require it to maintain certain cash and earnings levels that it might not be able to maintain unless it can renegotiate the agreements.
The SEC filing also updated investors on the Atlanta-based airline’s efforts to negotiate an agreement with a new Visa/MasterCard credit-card processor. Its existing processing contract expires Aug. 29.
In the filing, Delta said it reached a letter of agreement yesterday to extend the current contract to Oct. 31 at the latest and to initiate a cash holdback for Visa/MasterCard receivables for tickets sold beginning yesterday. The holdback would be at least $750 million if Delta keeps its current processor to the last possible moment.
That’s the amount of a cash reserve that Delta said it would be required to set up as part of an agreement it is still trying to work out with a new processor. The reserve would be deposited with the new processor immediately upon start of the new contract, for tickets purchased using Visa or MasterCard but not yet flown.
Delta also noted in the filing the threat it faces from early retirements by its 6,000 to 7,000 pilots. It said that since January, about 565 pilots have retired, including 475 who did so early. Of those who retired early, 145 did so Aug. 1, substantially more than historical levels, Delta said.
Delta has lost nearly $10 billion since January 2001.