Bankruptcy memo spurs Delta stock plunge

Sunday, 28 Jul, 2005 0

Delta Air Line stock continued to plummet after another warning from the CEO saying its cost-cutting would not be enough to save it from bankruptcy.

CEO Gerald Grinstein’s comments echoed earlier he made statements last week.

In the most recent memo, Mr Grinstein said the airline had made progress in its attempt to cut $5 billion in costs. “What is also clear is that it is not enough,” he added.

The airline’s shares fell more than 25% immediately.

Mr Grinstein said the nation’s third-largest airline is still working hard to avoid a Chapter 11 filing but he said it remained a risky proposal.

Mr Grinsten cited the impact of high fuel prices and the interest on the company’s huge debt as problem areas.

“We have been candid about the risk that a number of factors, some of which are beyond our control, will affect our ability to avoid a Chapter 11 filing,” he told employees.

He said in a memo that high fuel prices and intense air-fare competition, especially along the East Coast, are overwhelming cost cutting efforts that were expected to save $2.7 billion a year.

Some airline analysts said Delta seems to be preparing for the worst, even while it attempts to keep that from happening.

The Atlanta-based Delta last week reported a $388 million second-quarter loss. It has lost nearly $10 billion since early 2001.

In the past, Mr. Grinstein, who came out of retirement to lead the company, has repeatedly maintained Delta can be restructured to stay in business.

Delta this week is expected to announce new cost-saving changes and other steps.

In an attempt to gain some competitive advantage, the airline this week announced it would offer customers who buy tickets on the Delta Web site the chance to cancel some flights without penalty under certain circumstances.

Report by David Wilkening

David

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