In a move thought by some as an attempt to stave off bankruptcy as well as to generate cash, Delta Airlines made the move on August 16, 2005, to sell one of its regional carriers, Atlantic Southeast Airlines, to Skywest, Inc. The sale comes in the face of rising fuel prices and a high debt burden that many U.S. airlines in addition to Delta are carrying. As much as the $425 million selling price of the regional carrier will infuse Delta with cash, the carrier still has nearly $20 billion dollars in outstanding debt and leasing costs to manage. Delta is expected to use some of the funds to reduce their debt and set aside the remaining monies as reserves. Delta must have a reserve in place totaling $750 million dollars as it negotiates with a credit card processor this fall to extend or renew its contract with the processor. Without the reserves and the extension, Delta would be certain to file for bankruptcy. While Atlantic Southeast Airlines is no longer part of the Delta portfolio, two other divisions remain and may also be sold. Delta AirElite, the business jet sector of the company, is the most profitable part of the company. A sale of this company would probably signal to the industry that Delta cannot recover from its current financial plight. Cash rich Gulfstream Aerospace Company or TAG Aviation may serve as viable suitors for this company. Comair, another regional carrier owned by Delta, could also be put on the auction block. Selling this regional carrier would leave Delta without a regional service provider, however. Ultimately, these are bleak times for the venerable carrier. Odds strongly suggest that the company will seek bankruptcy protection this fall, particularly before changes in the U.S. bankruptcy law take place in October. High fuel prices and poor management decisions have contributed to Delta's current state of affairs; unfortunately employees and passengers will likely suffer the most should Delta go bankrupt. |
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