The US airline industry is descending deeper into crisis. Delta Air Lines and Northwest are the latest to say they do not have enough money to pay their bills. As a result they are seeking bankruptcy court protection from their creditors. Under a process know as Chapter 11 they will be able to delay paying while they reorganise, further cutting staff and flights. Both continue to operate full services and passengers should not be effected. Northwest is the fourth biggest airline in the States, Delta is the third.
Four of the country’s largest airlines are now in bankruptcy protection; the other two are US Airways and United. Delta’s debt exceeds its assets by 5.5 billion euros, Northwest’s shortfall is more than three billion euros. Soaring fuel costs are what has pushed these latest carriers over the brink and to seek bankruptcy protection. It is estimated that aviation fuel accounts for as much as 14% of an airlines’ total costs, but the airlines also have high labour and pension plan expenses and have been hit by competition from low cost rivals.
The bankruptcy protection process can help airlines. United and US Airways have used bankruptcy to pressure some of their suppliers and into lowering contract rates so helping reduce costs. US Airways is moving closer to emerging from Chapter 11 bankruptcy. Its reorganisation plan has just been approved by creditors and it should soon merge with rival America West. At Delta managers have said that more job losses and pay cuts will be announced in the next few weeks.
Northwest’s bankruptcy filing was more of a surprise than Delta’s. Northwest had been in better financial shape than some of its competitors, with an extensive Asian network and cargo business both of which were thought to be profitable.