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Air business bankrupt: Northwest, Delta Enter Ch. 11, fueling M&A speculation.

Article Excerpt
Nearly simultaneous bankruptcy filings last week by Delta Air Lines and Northwest Airlines marked a watershed moment for a chronically dysfunctional industry. Despite travel demand nearing peak levels of 2000, more than 40 percent of domestic industry capacity now is operated by insolvent companies. Seen as likely by many sources since Sept. 11, 2001, a shakeout in the commercial aviation sector appears underway.

Further along the restructuring spectrum, United Airlines this month finally filed a plan of reorganization and said it sees daylight after nearly three years of bankruptcy proceedings. US Airways similarly is planning to emerge from court protection, having all but wrapped up its merger with US Airways.

As those situations showed signs of progress--and provided glimpses into the industry's future--conditions at Delta and Northwest deteriorated, due in no small part to crippling jet fuel costs. Though both carriers for years have supported increasingly uncompetitive legacy cost structures, additional fuel price pressures in the wake of Hurricane Katrina was seen as the tipping point (BTN, Sept. 5). Changes to bankruptcy laws set to take effect Oct. 17 also weighed heavily.

In the immediate term, both carriers committed to maintaining uninterrupted operations--including flight schedules, ticketing policies and frequent flyer programs--and corporate clients for now won't be significantly impacted. "Corporate customers are pretty numb to any announcements like this," said Dee Runyan, executive vice president at WorldTravel BTI.

Moving forward, however, many changes are expected within both carriers' networks, including the potential for a merger with one...

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