Chapter 11 For Delta, Northwest

Delta Air Lines Inc. and Northwest Airlines Corp., hobbled by high fuel costs and heavy debt and pension obligations, filed for bankruptcy protection from creditors Wednesday, becoming the third and fourth major carriers to enter Chapter 11 since the 2001 terrorist attacks.

Delta's late afternoon filing included its low-fare subsidiary Song and was followed shortly after by Northwest's.

Delta's total debt is roughly $28.3 billion, and it listed $21.6 billion in assets, according to the filing. The asset figure would make Delta's bankruptcy the ninth-largest in U.S. history, according to bankruptcy tracker New Generation Research Inc. The ranking did not change following Delta's recent $425 million sale of feeder carrier Atlantic Southeast Airlines to SkyWest Inc.

Delta and Northwest said passengers were not expected to see any immediate effects from the filing. Delta also promised to honor all tickets and sent a letter to frequent-flier customers seeking to reassure them.

"We are operating our full schedule of flights, honoring tickets and reservations as usual, and making normal refunds and exchanges," Gerald Grinstein, chief executive of Delta, said in the letter.

Chapter 11 protection will allow Delta to pursue cuts in wages for its 65,000-plus full-time employees, as well as pension and health benefits for workers and retirees, that would have been more difficult or impossible without protected status.

Delta was expected to continue its normal schedule. However, as the company makes its way through bankruptcy court, some changes to Delta's operations could occur, analysts say.

Atlanta-based Delta, the nation's third-largest carrier, has lost nearly $10 billion over the last four years despite announcing it would cut up to 24,000 jobs. In September 2004, it also said it would shed its Dallas hub as part of a sweeping turnaround plan aimed at saving the airline. It has since scaled back its operations in Dallas.

Delta said it is arranging roughly $2 billion in post-petition financing and already received a commitment for $1.7 billion in financing.

Delta and Eagan, Minn.-based Northwest follows into bankruptcy UAL Corp., the Elk Grove Village, Ill.-based parent of United Airlines, and Arlington, Va.-based US Airways Group, Inc., which is undergoing reorganization for the second time in three years. Fort Worth, Texas-based AMR Corp., the parent of American Airlines, the nation's biggest carrier, teetered on the verge of bankruptcy before winning deep concessions from its employees. The other so-called legacy carrier, among those with a large presence in multiple regions prior to deregulation in 1978, is Houston-based Continental Airlines Inc.

Continental and American are in no immediate danger of bankruptcy. Continental had a big cost advantage over other traditional airlines after it slashed expenses during two bankruptcy reorganizations in the 1990s. American may be the strongest financially of the traditional airlines, thanks to $1.8 billion in annual labor concessions it won in 2003. Its parent company actually turned a profit in the second quarter.

But even the stronger carriers are finding business harder with fuel prices soaring, carrying crude oil futures past $70 a barrel earlier this month.

Some smaller carriers, including Honolulu-based Hawaiian Airlines and Indianapolis-based ATA Airlines Inc., also have filed for bankruptcy in recent years. Hawaiian emerged from bankruptcy in June.

The airline industry was devastated in the aftermath of the 2001 terror attacks, which prompted many people to cut back on air travel. The recession and slow economic recovery in the early part of the decade also eroded airlines' business, and the rise of low-cost carriers such as JetBlue Airways Corp. further stymied the big carriers' rebound.

Throughout 2004, Delta warned investors that it may have to file for bankruptcy if it didn't get deep wage concessions from its pilots and restructure its heavy debt. Then, last fall, it got $1 billion in pilot concessions and another $1.1 billion in fresh financing, giving the airline some much-needed breathing room. Check that rewording of first sentence is CQ.

But fuel prices began to soar, and the losses continued.

While all the major airlines have suffered from labor and fuel issues, some say Delta's situation has been made more difficult because of how long it took to get the pilot concessions. Airline expert Terry Trippler said he believes Delta should have filed for bankruptcy much sooner.

"That Delta attitude, it's been there a long time, it's what made them great, and its what made them hesitant to seek protection long ago," said Trippler, who runs travel Web site cheapseats.com.

Since Delta first came to the edge of bankruptcy last year, its pilot ranks have thinned as some have retired early. Retiring Delta pilots can elect to receive half their pension benefits in a lump sum and the other half as an annuity later — a move that could ensure they received at least some payout even if Delta later filed for bankruptcy. It's not clear how the lump sum benefit would be affected in bankruptcy, but bankruptcy judges have great leeway in approving changes to company operations.

As of June 30, Delta and its subsidiaries had 65,300 full-time employees and 869 total aircraft that the airline owned or leased. Delta also owns a regional feeder carrier, Comair Inc., and Song.

Delta is the nation's third-largest airline in terms of annual revenue; Northwest is the fourth largest. Delta has hubs in Atlanta, Cincinnati and Salt Lake City. Delta also is a major U.S. carrier to Europe.

Though based in Atlanta, Delta decided to file for bankruptcy in New York. Bankruptcy experts say some major companies based elsewhere file in New York because that is where much of the investment community is located and because bankruptcy judges there are perceived to be predictable in how they handle major cases. Mississippi-based WorldCom Inc. filed for Chapter 11 in New York in 2002.