Apr 18, 2003 4 min read

ATLANTA (AP) – Delta Air Lines said Thursday it faces its worst financial crisis ever as it reported a wider first-quarter loss and warned it will need to cut costs even further. But investors were encouraged the losses weren’t deeper, revenue edged higher and American Airlines’ success in getting unions to approve sharp cuts in labor outside of bankruptcy. For the three months ending March 31, Delta lost $466 million, or $3.81 a share, compared with a loss of $397 million, or $3.25 a share, for the same period a year ago.

Excluding one-time items – mainly charges for pension benefits related to job cuts – Delta said it lost $426 million in the quarter, or $3.49 a share. That beat the lowered expectations of analysts surveyed by Thomson First Call, who predicted a loss of $3.51 a share.

Revenue in the quarter was $3.16 billion, a slight increase from the $3.10 billion the airline brought in a year ago.

Atlanta-based Delta, which lost $1.3 billion last year, has laid off 16,000 employees since the Sept. 11 attacks.

On Thursday, the nation’s third-largest airline said it plans to furlough an additional 200 pilots this year because of a drop-off in travel due to the war in Iraq. It also plans to reduce capacity by 10 percent and will remove 12 MD-11 aircraft from service.

Delta blamed the war for $125 million, or more than one-quarter, of the first-quarter loss.

“Even as we face the greatest financial crisis in Delta’s history, which is deepened by the impact of military action in Iraq, Delta continues to successfully reduce costs, preserve liquidity and implement the strategic elements of our long-term plan for survival,” chief executive Leo Mullin said.

In a conference call with investors, Mullin said the outlook for Delta’s future is even more bleak. The airline expects to lose substantially more in the second quarter than it did in the same period a year ago.

Chief financial officer Michele Burns said that although fuel expenses skyrocketed in the quarter due to the war, “it is evident that we continue to make progress on the cost side.”

For major carriers like Delta, the war in Iraq and the deadly SARS illness in Asia have slowed international travel. At home, the struggling economy has prompted deep discounts on flights.

Still, shares of Delta were up $1.01, or 9.6 percent, at $11.50 in morning trading Thursday on the New York Stock Exchange. Other major airline stocks also rose on news that American Airlines was able to secure nearly $2 billion in concessions from its labor unions and avoid a bankruptcy filing, at least temporarily. AMR Corp. shares gained 21 percent and Continental Airlines shares rose 9 percent, both on the NYSE.

Continental and Northwest Airlines both reported hefty losses earlier in the week. Continental lost $221 million in the quarter, while Northwest lost $396 million in the quarter.

Northwest shares were barely changed Thursday. The Eagan-based carrier is negotiating hundreds of millions in wage and benefit givebacks from its unions.

Raymond Neidl, an analyst with Blaylock and Partners in New York, said there will be added pressure on Delta to make more cuts because of the deep concessions agreed to by employees at American Airlines. Delta cannot sustain such losses much longer, Neidl said.

“Like Continental and Northwest before it, there’s no surprise with Delta’s numbers,” Neidl said. “That’s why they have to move to cut costs as quickly as possible.”

Mullin said Delta will use the concessions agreed to at American as context for its talks with pilots about cuts. The company is working to avoid bankruptcy, he said.

“I think we’ll be moving forward with a sense of urgency on both sides with those discussions,” he said. “Everybody at Delta is working and is absolutely committed to achieving our aims outside of bankruptcy. It is a struggle that is worth the pain and challenge that it represents.”

Delta plans to hold its annual shareholder meeting next week in New York.

The company has faced criticism because in the midst of the layoffs it revealed Mullin earned millions last year. Mullin responded by saying he would cut his pay another 15 percent and wouldn’t accept incentive payments this year.

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