Updated from 9:45 a.m. EDTThe losses continue to mount at Delta Air Lines ( DAL), which missed Wall Street estimates and delayed its plan to reassess the company's business in hopes of becoming competitive again. Before the start of trading Wednesday, the carrier announced a first-quarter net loss of $383 million, or $3.12 a share. Despite the fact
Furthermore, the company said that it would not be willing to tap the capital markets going forward, citing a slew of recent debt rating downgrades and the fact it has a debt-to-equity ratio of 104%. "Our balance sheet has been severely damaged -- to the point of exhaustion," Grinstein said. The company is already taking steps to cut expenses. In the first quarter, Delta's cost per available seat mile, or CASM, came in at 10.71 cents, off 3.8% from last year, as the company cut nonlabor costs and boosted efficiencies. As Delta starts to focus on labor costs, it said CASM will continue to fall in the coming quarters. In the second quarter, Delta said that CASM would fall about 9% from the previous year's quarter, with CASM down 4% to 5% for the full year. But while the company moves to cut costs, it's also planning a big expansion of flights and the markets it serves. For the full year 2004, Delta said that it planned to expand capacity by 8% to 10%. With so many low-cost carriers like AirTran ( AAI), which competes with Delta out of its Atlanta hub, adding flights, there are concerns that too much capacity is coming back on line, forcing carriers to slash ticket prices. "We wonder how Delta can be adding capacity at such an aggressive rate for 2004 given its materially deficient terms," said Linenberg. At the end of the first quarter, Delta said it had $2.5 billion in cash, $2.2 billion of which was unrestricted. Unrestricted cash is down $500 million from the end of the fourth quarter, because of Delta's pension contributions and debt payments. And as Delta uses cash to fund pensions and pay down debt, the company's operations are burning through it at a time the company has $3 billion in debt due over the next three years, which is why
bankruptcy rumors are swirling. In the first quarter, Delta had negative cash flow of $280 million. Excluding pension costs, it would have had positive cash flow of $116 million.
But not all the news is terrible. While Delta's first-quarter loss of $3.12 a share was bad, an accounting change makes it look worse than analysts' estimates. Unlike last year, Delta included a $23 million charge related to its fuel-hedging activities in its first-quarter results. Without it, the company would have lost $3 a share, said Michele Burns, company CFO, on a conference call discussing results. Ultimately, the bad results have a silver lining; they could force employees to cut their pay earlier and deeper than they originally wanted to. A year ago, union groups at AMR ( AMR), parent of American Airlines, vowed to veto pay cuts before agreeing to last-minute concessions as the company weighed a bankruptcy filing. "The March quarter results should once and for all convince employees that Delta needs to be restructured -- sooner rather than later," said Linenberg, one of the only analysts to correctly predict Delta's loss. "The extent of the company's deteriorating financials plus growing low-cost carrier competition adds to the sense of urgency."