Their bankruptcy filings behind them, Delta and Northwest began a lengthy and costly road to recovery yesterday that will likely include cutting employee rolls, pensions and routes. In the end, if they survive, the nation’s third- and fourth-largest airlines will be smaller and may look more like the discount rivals that helped send them into bankruptcy.
That perspective by analysts, bankruptcy experts and academics was underscored Thursday as Atlanta-based Delta Air Lines Inc. and Eagan, Minn.-based Northwest Airlines Corp. sought to reject certain aircraft leases. In Delta’s case, it also asked a New York bankruptcy judge to allow it to abandon some properties and prevent utilities from turning off its power.
“What are they going to look like? They are going to look like Southwest or JetBlue,” said Manchester, N.H., bankruptcy and restructuring expert Dan Sklar, referring to the low-cost carriers.
David LeMay, an attorney who worked on Continental’s bankruptcy in the early 1990s, said that airline raised cash in bankruptcy by selling a valuable trans-Pacific route and a terminal it was building at LaGuardia airport in New York.
“I’m sure that both Delta and Northwest will be looking very, very hard at what is absolutely essential to keep and what can be sold,” he said.
While bankruptcy gives the airlines more leverage, it doesn’t address one of the companies’ fundamental problems – not enough revenue.
“There’s no motion you can make in bankruptcy court that says, ‘Please put $20 million in the checking account this week,'” LeMay said. “People have this impression that in bankruptcy you can do whatever you please, but that’s really not true at all.”
In Northwest’s case, the airline will likely press its pilots to change rules that limit its regional passenger service, said airline analyst Ray Neidl at Calyon Securities in New York. Regional flying is important to both carriers. But Northwest, with its large Midwest presence, already does more flights at small airports than any other carrier. Shifting more of those flights to its regional partners will help Northwest get profitable again, Neidl said.
Northwest is Michigan’s leading passenger air carrier, with a hub at Detroit Metropolitan Airport.
Yesterday the Air Line Pilots Association said Northwest was reducing flying levels, which would result in 400 pilot furloughs over the next eight months. That’s in addition to around 500 Northwest pilots already on furlough, the union said in a statement. A Northwest spokesman confirmed the furloughs, but had no comment on them.