Northwest, Delta file for bankruptcy protection

Reeling from low-cost competition and crushing debt and pension costs, Delta Air Lines Corp. and Northwest Airlines Corp. filed for bankruptcy protection last night, pushed over the edge by soaring jet fuel prices in the wake of Hurricane Katrina.

With the filings, four of the seven largest US airlines will now be operating in Chapter 11. Delta and Northwest are joining UAL Corp.'s United Airlines and US Airways Group Inc. Just under half of all airline-flight seats available in the US are now being operated by bankrupt airlines, according to the Air Transportation Association, a trade group.

US airlines have struggled for years to bounce back from the aftermath of the Sept. 11, 2001, terrorist attacks, which struck when the industry was already facing deep strains and scant profits before travel demand plummeted.

But so-called legacy carriers like Delta and Northwest that carry big debt and pension loads and operate expensive hub-airport operations have been especially hard hit. They have struggled to compete with low-cost upstarts such as Southwest Airlines Co. and JetBlue Airways Corp., and Delta has even tried to push into the low-fare market with its own brand, Song, which also sought bankruptcy protection yesterday.

The bankruptcy filings are likely to hurt Delta and Northwest stock and bond owners, potentially leaving their investments worthless. But analysts and airline executives agreed that it should be a virtual nonevent for passengers. Delta is the second-biggest airline at Logan International Airport in Boston after AMR Corp.'s American Airlines, serving roughly 100,000 passengers a week, or 20 percent of Logan traffic. Northwest is a distant fifth at Logan, serving 5 percent of passengers, according to airport statistics.

''The key thing is that it will be business as normal as the customer sees it, at least in the near-term future," said Henry Harteveldt, vice president of airline and travel research with technology consulting firm Forrester Research.

The rising price of jet fuel after Hurricane Katrina's rampage through the Gulf Coast, analysts said, served as the final straw for Delta, which has lost $10 billion since 2001 and carries more than $28 billion in debt. The airline, with roots in a Georgia crop-dusting operation, began passenger operations in 1929 flying from Dallas to Jackson, Miss. Building off its dominant hub at Atlanta's Hartsfield-Jackson International Airport, Delta steadily grew to become the third biggest US airline. It took over international operations of the defunct Pan Am Airlines in 1991 to become a key global carrier as well that employs 65,000 people. Delta's filing is the ninth-largest bankruptcy filing in US history.

Northwest, based in a suburb of Minneapolis, has the highest labor costs in the industry, and it has warned investors it will pay 50 percent more for fuel this year than it did last year and double what it did in 2003.

Delta chief executive Gerald Grinstein, in a statement, said that all tickets remain valid, frequent flyer miles are still good, and Delta will continue to operate all 7,500 currently scheduled flights to 502 destinations.

''Delta is open for business as usual and will continue normal operations throughout the reorganization process," Grinstein said. ''Our customers can be confident that they remain our number-one priority and that their travel plans and SkyMiles are secure." Grinstein said the airline had lined up $2 billion in capital to support airline operations as it goes through bankruptcy.

Northwest president and chief executive Doug Steenland said the airline's executives have been pursuing a plan ''to restructure Northwest outside of Chapter 11 and have been implementing that plan. Unfortunately, in addition to an uncompetitive cost structure, our efforts have been overtaken by skyrocketing fuel costs."

By filing for bankruptcy protection, the airlines will get time to make plans to ensure their financial solvency, under the supervision of a judge. The airlines will be able to ask the judge to enforce cuts in wages, reductions in responsiblity for debt, and allow changes to pension and health benefits for workers and retirees in an attempt to streamline costs.

While under protection, the airlines will generally be able to operate as before because the filing offers the carriers a breather from any actions from creditors.

Locally, Logan International Airport officials expressed confidence Delta's bankruptcy would have no impact on travelers or airport finances. The Massachusetts Port Authority put up more than $500 million to build the new Delta Terminal A that opened earlier this year, selling bonds backed by Delta rent pledges.

Wall Street rating houses downgraded the debt to junk-bond status last month in anticipation of a Delta bankruptcy. The lower rating signals to investors that the bonds present a higher risk they won't be repaid so making it more expensive for the carrier to borrow. But Massport spokeswoman Danny Levy said, ''We expect Delta to continue to pay its rent." Massport also has expressed confidence it could reallocate gates at Terminal A to other airlines to avoid any major financial fallout if Delta reduces or consolidates flights.

''Delta has a long and successful history at Logan and we are optimistic that Delta will emerge from bankruptcy protection like other airlines before them and continue to serve the highly desirable Boston market," Levy said.

Dan Kasper, a veteran aviation industry consultant with LEGC LLC in Cambridge, agreed that for consumers, service with an airline operating in bankruptcy ''will be no different from the day before they filed." But past practice indicates consumers could expect to see Delta and Northwest within several months make deep cuts in service to cut costs, Kasper said.

Delta already has begun making cuts, disclosing plans last week to reduce service by over 20 percent in and out of its Cincinnati hub and move many connecting flights to its main Atlanta hub. Delta also wound down hub operations in Dallas last year and has cut 24,000 jobs.

''They won't necessarily drop routes, but they will switch to smaller planes and less frequent service," Kasper said.

Among other big legacy carriers, American and Continental Airlines Inc. are generally seen as financially sound and able to keep up with industry financial leader Southwest. Continental already has undergone two expense-slashing bankruptcy reorganizations in the 1990s. American extracted $1.8 billion in financial concessions from labor unions two years ago and achieved an actual profit in the second quarter of this year.

United is grinding through its third year in Chapter 11. US Airways, meanwhile, is wrapping up its second Chapter 11 proceeding in just three years, which it expects to pull out from soon and merge with low-cost carrier America West Airlines, which itself went into bankruptcy in the early 1990s, but fought back.

Harteveldt, the Forrester Research analyst, formerly held executive positions at Continental and a second airline that went through Chapter 11, TWA. He predicted Delta is likely to have few major problems working through bankruptcy protection. ''The sad truth," Harteveldt said, ''is that a bankrupt airline is no longer unusual."

Peter J. Howe can be reached at howe@globe.com.