Delta to sell regional carrier for $425m
Troubled carrier plans to use cash to pay down debt
ATLANTA -- Delta Air Lines Inc., which is struggling to avoid a bankruptcy filing amid persistently high fuel costs, said yesterday it is selling feeder carrier Atlantic Southeast Airlines Inc. to SkyWest Inc. for $425 million in cash.
Delta, the nation's third-largest carrier, said the proceeds will be used for general corporate purposes and to pay down $100 million of debt under its loan agreement with GE Commercial Finance and other lenders.
Delta shares fell 22 cents, or 13.7 percent, to close at $1.39 in heavy trading on the New York Stock Exchange. The close, Delta's lowest in at least 43 years, dropped the company's market capitalization to roughly $200 million. Standard & Poor's said that after the close of trading Thursday it will replace Delta with Public Storage Inc. on the S&P 500 index. Public Storage is a real estate investment trust based in Glendale, Calif. Heavy equipment manufacturer Caterpillar Inc. will replace Delta on the S&P 100 index.
In after-hours trading, following the ASA disclosure, Delta shares surged more than 27 percent.
The sale, subject to regulatory review, is expected to close in September.
In a quarterly filing yesterday with the Securities and Exchange Commission, Delta said that even with the sale of ASA and other financing deals it is trying to work out, it could still be forced into bankruptcy. It noted that prior loan agreements with GE and American Express require it to maintain certain cash and earnings levels that it might not be able to maintain unless it can renegotiate parts of the agreements.
The SEC filing also updated investors on the Atlanta-based airline's efforts to negotiate an agreement with a new Visa/MasterCard credit card processor. Its existing processing contract expires on Aug. 29.
In the filing, Delta said it reached a letter of agreement to extend the current contract to Oct. 31 at the latest and to initiate a cash holdback for Visa/MasterCard receivables for tickets sold beginning yesterday. The holdback would be at least $750 million if Delta keeps its current processor to the last possible moment.
