HEADLINE: A Smaller Loss Than Expected At
Delta Sends Shares Up 21%
BYLINE: By EDWARD
WONG
BODY:
Delta Air Lines reported a deeper loss yesterday, reflecting a summer
in which passengers -- worried about the shaky economy and inundated with talk
of war and terrorism -- failed to return to the skies at the rate executives had
hoped for.
But the loss, excluding unusual items, was
better than analysts had expected, and shares of Delta rose $1.59, or 21
percent, to close at $9.09 yesterday. That was the largest single-day percentage
gain for Delta in two decades, said Jamie Baker, an analyst at J. P. Morgan.
"The fundamentals may not be showing any improvement, but
at least the deterioration appears to have halted," Mr. Baker said. "Before
anything in life starts getting better, it has to stop getting worse first."
Delta, the nation's third-largest carrier, was the first
airline to report its third-quarter earnings, and its numbers portend a
depressing week for the industry.
AMR, the parent of
American Airlines, the world's largest carrier, is expected to report its
financial results today. Analysts expect its numbers to be bleak, though likely
not as bad as those of its biggest rival, United Airlines. UAL, the parent of
United, is scheduled to announce its third-quarter results on Friday, and has
said it could file for bankruptcy by mid-November.
Over all, the industry is expected to lose $7 billion or more this year
as companies struggle to keep flying.
With special
charges and gains factored in, Delta lost $326 million, or $2.67 a share, in the
third quarter. Excluding one-time charges and gains, the loss at Delta was $212
million, or $1.75 a share, better than analysts' consensus estimate of a loss of
$1.84 a share, according to a survey by Thomson First Call.
The one-time unusual items included a $139 million charge from a
reduction in market value of its aging MD-11 and Boeing 727 aircraft and spare
parts.
Delta had revenue of $3.42 billion in the
quarter, up slightly from $3.4 billion a year earlier, when the Sept. 11 attacks
devastated air traffic.
In the third quarter of last
year, Delta had a loss of $259 million, or $2.13 a share.
Delta's bad quarter was not a surprise, because the company had
predicted a big loss in a Securities and Exchange Commission filing on Sept. 27.
Executives foretold a gloomy year ahead for airlines
during a conference call yesterday morning.
"There is
no doubt that this has been a demanding quarter for Delta and the entire
industry," said M. Michele Burns, the chief financial officer. "We do not see a
near-term improvement."
Ms. Burns said the
fourth-quarter loss would be in line with analysts' expectations. The consensus
estimate by Thomson First Call is for a loss of $2.20 a share in the fourth
quarter.
To cut costs, Delta said it planned to ground
all 15 of its MD-11 aircraft and defer deliveries of new Boeing planes in 2003
and 2004. The deferrals -- five planes next year and 24 in 2004 -- will help
reduce $1.3 billion from capital expenditures over that time period, executives
said.
The elimination of the MD-11's, a McDonnell
Douglas line that first went into service in 1992 at Delta, will help simplify
the fleet of Delta, a move that many large carriers are also undertaking. The
fewer different types of planes in a fleet, the more the airline will save in
long-term employee training and maintenance costs.
Frederick W. Reid, the chief operating officer, said Delta had been
relatively successful in predicting the decline in traffic around this Sept. 11,
the anniversary of the attacks. The airline reduced the number of seats and
flights throughout the quarter, and its systemwide capacity was down 8.3 percent
from the period two years ago. (Comparisons to 2001 would be less relevant,
because of the unusually drastic cutbacks in flights after the terrorist
attacks.)
In the third quarter, Delta also received
$22 million from the Air Transportation Stabilization Board, which was set up by
the federal government to grant $5 billion in cash assistance to the industry
after the attacks.
In the last month, the chief
executive, Leo F. Mullin, has joined rival airline executives on Capitol Hill to
urge the government to give the industry more financial aid. They are pushing
for the government to pick up security costs, as well as costs related to
terrorism insurance.
Late last month, the aviation
subcommittee in the House of Representatives proposed a bill that included
several very limited provisions to help the carriers, but did not tackle the
issues that the executives were most concerned about.
The current legislation, if passed, would extend the government's role
in helping to provide war-risk insurance and to accept again
applications for a $10 billion loan guarantee program if the United States goes
to war with Iraq.
But the legislation would not end a
security tax of $2.50 a flight segment that the government has levied on airline
tickets. Executives argue that the tax unnecessarily raises ticket prices at a
time when people are already reluctant to fly. Mr. Mullin said he expected Delta
to forgo $250 million of revenue this year because of this tax.
"I don't think it's done yet, obviously, and we'll continue working on
this," he said of the government's proposed aid package.
It is questionable whether this bill would even go to a full vote in
the House and the Senate, because many members of Congress are preoccupied with
sifting through what is generally considered more important legislation dealing
with war against Iraq.
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