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ATLANTA — Delta Air Lines Inc. wants to give itself some more breathing room to deal with $904 million in debt that would come due after it receives a single operating certificate to fully integrate Northwest Airlines into its fold.
Delta said in a Securities and Exchange Commission filing on Wednesday that it will essentially be taking on new debt with a later maturity date to pay current debt that would be owed by Northwest once the FAA certificate is achieved. Delta, which acquired Northwest in October 2008, has said it expects to receive the single operating certificate by the end of this year.
Delta plans a private offering of $500 million in senior secured notes due 2014. It said it would use the proceeds from that offering, along with initial borrowings under new senior secured credit facilities, to repay Northwest borrowings. Aything left would be used for general corporate purposes, Delta said.
The world's biggest airline operator has significant debt obligations and has suffered massive losses amid the drop-off in revenue due to the global economic downturn.
But Delta is generally considered to be in stronger financial shape than some other large carriers thanks to a war chest of $5.4 billion in unrestricted liquidity it had as of June 30. That figure is expected to fall to $4.6 billion by Dec. 31.
Standard & Poor's credit ratings for Delta and Continental Airlines are not as weak as its ratings for American Airlines, United Airlines and US Airways.
The new notes will be secured by Delta's Pacific route authorities, slots and gate leaseholds. Those assets will also constitute the collateral for the company's new senior secured credit facilities, Delta said.
"They are refinancing and extending the maturities of about half their current debt maturities," Standard & Poor's analyst Philip Baggaley said in an interview. "Including what they plan with the bank facilities, it would be a material improvement to their liquidity situation if they are successful."
As of June 30, Delta listed $1.82 billion in current maturities of long-term debt and capital leases. That is debt that the airline would have to pay over the next 12 months.
Baggaley said the amount equals roughly 7 percent of the revenue the airline generated over the previous 12 months, the highest proportion of debt to trailing 12-month revenue for any large U.S. airline.
Delta listed total debt of $14.8 billion as of the end of the second quarter, regulatory filings show.
Amid the weak economy, credit markets have been tight. But airlines have at times been able to tap those markets to give themselves more breathing room with respect to their debt obligations.
"Recently, in the past several months, the capital markets have reopened to the airlines, but their access to capital was much less certain earlier this year," Baggaley said. "As the prospect of economic recovery becomes more clear and the airlines have success in raising liquidity, that builds on itself and makes it easier to borrow more, although it's usually on a secured basis."
Baggaley said the main concern of potential lenders or buyers of bonds is whether some of the weaker airlines could survive through this winter.
"That would depend on revenues, fuel prices and how much new cash they can raise to pay off debt as it comes due," he said. "The picture on the revenues and refinancing has improved recently. The fuel is about the same."
JP Morgan airline analyst Jamie Baker said in a research note Monday that his firm continues to believe that airlines are in the process of turning a financial corner.
"Balance sheets (are) by no means out of the woods, though for now we stand by our view that near-term bankruptcy risk has significantly diminished at current fundamentals," Baker said.
Delta shares rose 34 cents, or 3.7 percent, to $9.49 in afternoon trading Wednesday.
