Delta stock plunges anew on analyst downgrade, bankruptcy fears
Tuesday, August 9th 2005, 10:52 am
By: News On 6
ATLANTA (AP) _ Delta Air Lines Inc.'s battered stock plunged anew Tuesday after a Wall Street analyst advised clients to sell their shares on fears the nation's third-largest carrier will file for bankruptcy within the next two months.
In morning trading on the New York Stock Exchange, Delta's shares fell 24 cents, or 10.8 percent, to $1.99. The company's market capitalization _ the total value of the company's outstanding shares _ fell to $286 million, less than one-third the amount of discount carrier AirTran Airways despite Delta being 15 times larger in terms of annual revenue.
Prior to the dip, Delta's stock was already at a 43-year low.
The dip came on the heels of a research note by Merrill Lynch analyst Michael Linenberg, who lowered the Atlanta-based airline's rating from neutral to sell.
``We think the recent surge in fuel prices greatly increases the likelihood of a bankruptcy filing within the next two months,'' Linenberg said.
He said that while Delta, which has lost nearly $10 billion since January 2001, has been in talks with creditors about additional funding, he believes the surge in oil prices could keep lenders at bay for now.
He estimated that Delta's fuel bill this year could grow by more than $1 billion, wiping out the $1 billion of cost concessions provided by the airline's pilots last year.
``We think the probability of a Delta bankruptcy filing has grown, and we think investors should be mindful of Oct. 17, when more restrictive bankruptcy legislation becomes effective,'' Linenberg said. ``That could be a key factor in a Delta deciding whether to file for Chapter 11 bankruptcy.''
On Monday, Delta named a new treasurer after its previous treasurer left the company. Late Monday, J.P. Morgan analyst Jamie Baker said in a research note that ``another potential shock'' is close with Delta's quarterly filing to the Securities and Exchange Commission expected this week.
Baker said a Delta bankruptcy filing by the end of the year is ``all but assured'' if the airline doesn't get a significant infusion of cash in the near term.
Delta's chief executive has said the company's current transformation plan, which includes cutting annual costs by $5 billion by the end of next year, is not enough to save the struggling carrier.
CEO Gerald Grinstein says Delta is still working hard to avoid a Chapter 11 filing, but he has acknowledged there are risks affecting the airline's ability to do that.
Delta, citing high fuel prices, reported late last month that it lost $388 million in the second quarter.