Delta and Northwest file for Chapter 11
Financially ailing Delta Air Lines and Northwest Airlines both filed for Chapter 11 bankruptcy protection, joining United Airlines and US Airways which have been operating under protection from creditors for some time.
High fuel and labour 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.
The double filing for Chapter 11 prompted speculation that consolidation within the traditional ‘legacy’ US airline sector is now inevitable.
There are also questionmarks over the future of the the two airlines’ alliance partnerships – Northwest with KLM and Delta as part of the Skyteam grouping which also includes KLM and Air France.
Northwest president and CEO Doug Steenland said: “As we have consistently stated, the airline industry has changed permanently. Northwest must significantly lower its costs to compete with other carriers.
“Many of these are legacy carriers that have already used the bankruptcy process to achieve changes in their cost structures or newer, low-cost carriers which have much lower labour and operating costs than legacy carriers.”
Northwest has seen fuel costs “skyrocket” to $3.3 billion this year from $2.2 billion in 2004 and $1.6 billion the previous year.
Steenland said: “We can no longer continue to incur sizeable losses and reductions in liquidity. By filing for Chapter 11 now we ensure that we have the means to complete the transformation of Northwest quickly and effectively.”
Both Delta and Northwest said normal operations would continue despite the bankruptcy protection filings.
Delta said it had taken the action to file for Chapter 11 reorganisation “as part of efforts to address its financial challenges and become a smpler, more efficient and cost-effective airline”.
CEO Gerald Grinstein said: “Delta is open for business and will continue regular operations today and throughout the reorganisation process.”
British Airways has strongly criticised the Chapter 11 process, claiming it unfairly props up unviable airlines – “the walking dead”.
Meanwhile, American Airlines is due to outline its commitment to the UK market and give an update of its business situation today. Europe and Pacific vice-president Craig Kreeger will also unveil a new advertising campaign.
Report by Phil Davies
Phil Davies
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