Delta debt-swap plan concerns credit agency

ATLANTA -- Delta Air Lines Inc.'s plan to restructure some of its debt outside of bankruptcy has raised concerns among credit analysts who believe the move could be tantamount to defaulting on the money the struggling carrier owes.

Standard & Poor's on Thursday dropped Delta's credit rating to a lower degree of junk status and warned that the rating could be lowered to default.

S&P is concerned that a swap of debt for equity in the airline, which operates a hub at Salt Lake City International Airport, could be viewed as coercive if the debtholder has no other choice and ends up receiving less financial consideration than originally owed.

Atlanta-based Delta's low credit rating hampers its ability to raise additional financing.

Delta's debt stands at more than $20 billion.

"Ratings could be lowered if Delta does not make rapid progress toward significant cost reductions in its negotiations with pilots, or if there are further moves toward out-of-court debt restructuring," S&P analyst Philip Baggaley said.

In trading Thursday, shares of Delta fell a penny to close at $4.06 on the New York Stock Exchange.

The company outlined on Wednesday a debt restructuring proposal that involves certain equity certificates issued by investor groups that lease aircraft to the airline to assist in financing the planes' cost. Delta is asking the holders of those certificates to remove any restrictions that would prevent the airline from buying or holding the securities.

In addition to wanting to restructure its debt, the nation's third- largest airline is trying to get $1 billion in concessions from its pilots, make changes to its fare system and improve customer service as part of a broad turnaround plan.

The airline has warned of the possibility of bankruptcy if it doesn't get the pilot cuts.

On Thursday, Delta met with its pilots union behind closed doors to discuss the company's proposal. The union has offered up to $705 million in concessions. Company and union officials would not provide any concrete details about the meeting. Union spokesman Chris Renkel, in a message to pilots, said only that the union is reviewing the information Delta provided.

Delta was expected to address at the meeting the pilot union's request for an equity stake, either through stock options or profit- sharing, in the company. Chief executive Gerald Grinstein has said the company is working on a rewards program that would provide incentives to employees for good performance. At the same time, he has said his turnaround plan will mean more job cuts at the airline, though he has not provided numbers.

Delta has already reduced its work force by 16,000 in the last three years, as it has lost more than $5 billion amid higher fuel costs and stiff competition from low-fare carriers.

Also Thursday, Delta said it will reduce fares by as much as 60 percent for flights out of its Cincinnati hub.

The program does not require travelers to spend a Saturday night at their destination, which is required under many current fare restrictions, Delta officials said.

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