Updated from 8:21 a.m. EDT

Less than a week before it reports second-quarter earnings, Delta Air Lines ( DAL) shares fell 6.1% Tuesday after the company said it will take a $1.65 billion non-cash for the reporting period.

The beleaguered carrier, which needs to wheedle wage concessions from pilots in order to stave off a bankruptcy protection filing, said the bulk of the charges, $1.53 billion, is related to deferred income taxes. Essentially, the company has stopped recognizing income tax benefits going forward, with Delta saying it does not know when it will be able to generate sufficient taxable income to use its deferred income tax assets.

As Delta struggles, employees are leaving the company. The remaining $117 million in charges covers a settlement related to the company's defined benefit pension plan for pilots because of higher-than-average retirements. The company, which releases earnings this coming Monday, stressed that the charges will not affect its June 30, 2004, cash position.

In reaction, shares of the carrier fell 41 cents to $6.34.

The situation at Delta is growing so dire that Citigroup Smith Barney analyst Daniel McKenzie cut his price target on the carrier to $1 on Monday night, citing the government's decision to deny United Airlines, unit of UAL ( UALAQ.OB), a loan guarantee.

"We think the risk of Delta filing for Chapter 11 have substantially increased, particularly with fuel continuing to hover near peak levels," wrote McKenzie, in a research note. "Despite encouraging news from the Delta pilots union on concessions, we think labor uncertainty increases for Delta following the UAL loan guarantee denial." (Citigroup Smith Barney does and seeks to do business with the companies covered in its research reports.)

Furthermore, McKenzie warned current Delta shareholders that they may not see the kind of appreciation enjoyed by AMR ( AMR), parent of American Airlines, whose shares skyrocketed after employees agreed to wage cuts just over a year ago. In his view, Delta's hub markets face too much low-cost competition from AirTran ( AAI) and JetBlue ( JBLU) and the company's underfunded pension plan will divert cash it could use to repair a debt-laden balance sheet.

And while McKenzie noted that Delta's management only has to negotiate with pilots for concessions, such talks are likely to be highly contentious and lengthy.

"We're concerned that the labor battle with Delta's pilots will prove too difficult," said the analyst, adding later, "Delta is now seeking $1 billion in savings from the pilots, vs. management's previous request for savings of approximately $850 million, according to our labor sources ... Ultimately, we think the sacrifice asked of the pilots will be too tough a pill to swallow."

The $1 billion that Delta management is now supposedly asking for is not only more than it previously asked for -- it's also a far cry from the union's prior offer of $300 million in concessions. Currently, the union is drumming up support for deeper cuts with McKenzie's sources saying a new offer from pilots could be on the table as this week.

The tenuous situation comes as Delta and other major carriers such as Continental Airlines ( CAL) have been hurt by high fuel costs as crude oil prices hover around $40 a barrel. Furthermore, Delta has also seen a spate of senior executives leave the company in recent months, as it attempts to pull together a top-to-bottom reorganization of the company's business.