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Chris Jones

Airline Bankruptcies Won't Affect Nevada

15 September 2005

LAS VEGAS -- Plagued by high fuel costs, heavy debt and intense competition for paying travelers, Atlanta-based Delta Air Lines and Eagan, Minn.-based Northwest Airlines separately filed Chapter 11 bankruptcy petitions Wednesday, becoming the third and fourth major carriers to do so since the 2001 terrorist attacks.

The bankruptcy filings should not disrupt Southern Nevada's travel-dependent economy, industry sources said.

Both companies, for now, plan to continue normal operations, which as of August included 21 daily Las Vegas departures for Delta and approximately 15 for Northwest, according to McCarran International Airport data.

Through July, Delta's 1.6 million local passengers made it McCarran's fourth-busiest carrier, while Northwest's approximately 1 million ranked sixth.

Bankruptcy cases often take years to resolve, so McCarran spokeswoman Elaine Sanchez said she does not expect any interruptions or changes will occur here in the short-term.

"When these processes begin, it takes a long time before you start seeing evidence of it at an airport," Sanchez said.

Leo Falkensammer, chief financial officer and vice president of Las Vegas-based Prestige Travel, agreed.

"It's bad news for stockholders since those stocks will probably disappear, but consumers won't notice this at all," Falkensammer said.

When Braniff Airways and Eastern Airlines respectively shut down in 1982 and 1991, for example, Falkensammer said, their customers were burned when other airlines refused to honor existing tickets. But recent bankruptcy filings by United Airlines and US Airways caused no such disruption, a trend Falkensammer expects will be repeated.

"Frequent-flier miles are still in place, and tickets are still being honored," Falkensammer said. "It shouldn't hurt (Las Vegas) at all."

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. The ranking did not change following Delta's recent $425 million sale of feeder carrier Atlantic Southeast Airlines to SkyWest.

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

Chapter 11 protection will allow Delta to pursue wage cuts 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 its operations could occur, analysts say.

The nation's third-largest carrier, Delta has lost nearly $10 billion over the past four years despite announcing it would cut up to 24,000 jobs. In September 2004, it 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 follows into bankruptcy UAL Corp., the Elk Grove Village, Ill.-based parent of United Airlines, and Arlington, Va.-based US Airways Group, 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 carriers, those with a large presence in multiple regions prior to deregulation in 1978, are Northwest and Houston-based Continental Airlines.

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 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.

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 further stymied the big carriers' rebound.

Delta has hubs in Atlanta, Cincinnati and Salt Lake City, and is also a major U.S. carrier to Europe.

Northwest is the nation's fourth-largest airline.