Updated from 9:29 a.m. EST

Another quarter, another warning from

Delta Air Lines

(DAL) - Get Report


The nation's No. 3 airline said Thursday that it will post a "substantial" loss in 2005 and warned of a potential liquidity crisis, as high fuel prices and intense competition amid industry overcapacity overwhelm its turnaround efforts.

In a filing with the

Securities and Exchange Commission

, the Atlanta-based airline also said that as a result of those conditions, "cash flows from operations will not be sufficient to meet all of our liquidity needs for that period."

In reaction, shares tumbled as much as 14.1% and recently traded down 52 cents, or 10.6%, at $4.37.

Only by relying on available cash and short-term investments, a regional jet credit facility and the final $250 million of financing from an

American Express

(AXP) - Get Report

frequent-flyer program will Delta be able to meet its liquidity needs this year, the filing said.

Worse yet, Delta said it doesn't expect to be able to supplement its liquidity with fresh debt financing, because almost all of its assets are already encumbered and its credit ratings are low. "Unless we are able to sell assets or access the capital markets by issuing equity or convertible debt securities, we expect that our cash and cash equivalents and short-term investments will be substantially lower at December 31, 2005, than at the end of 2004," the filing said.

Delta has been struggling to slash costs and restructure operations. Only by getting its pilots to accept concessions valued at about $1 billion a year was Delta able to avoid filing for bankruptcy protection late last year. The airline warned in the previous two quarters and lost $2.2 billion dollars in the fourth quarter.

Its overall transformation plan targets $5 billion in annual savings by the end of 2006 compared with 2002.

But with oil prices once again flirting with record highs, the company's efforts may not be enough. "The forward curve for crude oil currently implies substantially higher jet fuel prices for 2005 than our business plan," Delta said. If oil doesn't decline "significantly" from current levels, the company said, its liquidity needs will be "substantially higher than we expect."

On Wednesday, crude oil futures came within two cents of their $55.67 intraday record. Although they were trading lower near $54.19 Thursday they remain well above analysts' previous forecasts. For example, Goldman Sachs analyst Glenn Engel had expected crude to average $45 a barrel in the first quarter and $41.50 for the rest of the year. Earlier this week, he increased his fuel assumptions by $5 a barrel and raised his estimate for 2005 pretax airline industry losses to $2.6 billion from $1.6 billion. (Goldman Sachs does and seeks to do business with companies covered in its research reports.)

Delta has implemented wide-ranging changes to its operations, including a new fare structure dubbed Simplifares that caps its top rates and a greater emphasis on its low-cost airline Song. The new fare structure has forced other airlines to change pricing. On Wednesday, rival


(CAL) - Get Report

warned that its revenue would take a $200 million annual hit because of Simplifares. Delta is also expected to see a negative initial revenue impact from the program, but its executives have said it will help the airline better compete with low-cost airlines such as

JetBlue Airways

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(LUV) - Get Report


Now with oil on the rise again, Delta's fare simplification could prove ill-timed. "When they initiated Simplifares, I don't think they expected oil prices to go back up to $55 a barrel," said Helane Becker, airline analyst at The Benchmark Co., a New York-based brokerage. (The Benchmark Company neither does nor seeks to do business with companies its analysts cover.)