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Delta and Northwest file for bankruptcy protection-now what?
Financially ailing Delta Air Lines and Northwest Airlines both filed for Chapter 11 bankruptcy protection late Wednesday afternoon, joining United Airlines and US Airways who have been operating under bankruptcy for some time.
High fuel and labor costs, coupled with competition from low cost airlines and over capacity of seats in general, brought about Delta and Northwest’s financial woes. Tougher bankruptcy rules which come in effect on October 17, hastened the bankruptcy filings.
Going forward, the keyword operating word is ‘reduce’ for Delta and Northwest, while they operate under the bankruptcy courts protection:
- Reduce capacity (estimated 15%) by getting rid of leases on old inefficient jets
- Reduce staff through lay-offs (7,000 jobs at Delta next year)
- Reduce labor costs through further concessions from all employees, through their unions
- Reduce pension plan debts by not paying current pension contribution short falls and passing on the obligation to the federal government/tax payers. United recently shed $10.1 billion. Delta has a $10.6 billion shortfall and Northwest $3.8 billion.
Additionally, airline mergers are now ripe (read our August 17th article Airline merger predictions from Forbes), especially for Northwest who is short on cash and further assets to borrow against. Delta obtained $2.2 billion in financing yesterday to help it operate under bankruptcy.
Delta’s SkyMiles frequent flier program and Northwest’s WorldPerks program, similar to Southwest’s Rapid Reward, are not convertible to other airlines’ frequent flier programs. They may only be redeemed on Delta or Northwest and their partners; therefore, InsideFlyer advises members not to make a “run on redemptions”.
Reported by Charles Kao
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