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Delta Air Lines

(DAL) - Get Delta Air Lines Inc. Report

has warned that high fuel and labor costs could force the company to seek bankruptcy protection, but on Tuesday another cost just got more expensive as well -- the cost to borrow money.

Standard & Poor's Rating Services affirmed its current credit rating on Delta, while revising the carrier's long-term outlook to negative from stable. The move comes just one day after Delta disclosed in an SEC filing that it may have to file Chapter 11 if it cannot get unionized pilots to agree to cost cuts.

"The warning makes explicit what previous company statements had hinted at, and may indicate that Delta believes it will have to move to the brink of bankruptcy to persuade its pilots to grant concessions," said Philip Baggaley, Standard & Poor's credit analyst.

Indeed, Delta and its pilots, whose contract does not become amendable until May 2005, are not even at the negotiating table yet after initial attempts to open talks failed. Delta management has asked pilots to cut their pay by 30%, whereas pilots have offered a 9% pay cut and additional concessions, like deferring a raise.

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Furthermore, Delta's management has been shaken up by a number of departures which have delayed the company's plans to file a sweeping review of its business model. In the last two months, former president and COO Fred Reid left to take the CEO position at Virgin Atlantic's still unannounced low-cost U.S. start-up; CFO Michele Burns became CFO of Mirant Energy and the carrier's lead negotiator with its unions, Terry Erskine, has left the company.

While Wall Street analysts don't believe that Delta is an immediate bankruptcy risk, with $26.2 billion in total assets against $12.5 billion in total debt, the carrier's nearly $400 million loss in the first quarter drives home the pressing need to cut costs. And with S&P lowering its rating and Delta warning about bankruptcy, the pressure is mounting on unions to accept deep pay cuts.

Otherwise, the carrier runs the risk of becoming like

US Airways


, which desperately needs unions to cut their pay again, or else file for its second bankruptcy in as many years.