What is the status of cash on hand and the ability for DAL to go into and exit BK? I know DAL leveraged quite a bit last year to avoid C11. I certainly do not wish this pain on anyone as you all know it's been hell at UAL for quite some time.
Delta ended the second quarter with just under $1.8 billion in cash. Its agreements with GE Commercial Finance and American Express, which it renegotiated in May, require it to keep $1 billion in cash on hand through 2007.
Some analysts have suggested that Delta might seek bankruptcy protection if its cash falls below $1.4 billion. But Delta executives have said that there is no "magic number" and that they would feel comfortable operating with less cash, given that the company has cut expenses.
So Delta conceivably would be able to provide the reserve sought by the credit card processor. But people close to its discussions say it is exploring ways to avoid that. One way would be to persuade another lender to underwrite the amount, basically providing a guarantee that Delta would honor its obligation, but allowing Delta to use its cash to run its operations and meet its other obligations.
Along with the credit card agreement, Delta must make the remaining $135 million that it owes in pension contributions for 2005. It also faces $100 million in debt payments this quarter, and another $335 million in the fourth quarter, including a corporate bond payment due in December.
Note that those cash payments listed don't include current planned capex spending and also cash burn from operations (DL actually burned cash from operations alone in Q2). The credit card cash reserve could easily by $200M or more. All in all they are in real danger of breaking their $1Bn unrestricted cash covenant limit.
DL's problem is a) raising new cash (who wants to buy an rj fleet full of 50-seaters) and B) it doesn't have any collateral left to secure a DIP loan -- GE mopped most of the remaining collateral for their financing in December. US went into BK II with just the cash it had as it new it wouldn't be able to rasie DIP financing.
There will be a lot of pressure for DL to file soon rather than later to go in with as large a cash balance as possible.
Here's the quick and dirty on DL' cash position for the remainder of the year.
1.7 Bil plus at least 300 Mil from the ASA Sale, less 20 Mil pension payments, less 225 Mil Cap Ex, less 375 debt service, less 180 Mil negative cash flow from operations. That's 1.2 Bil by the end of the year. 1 Bil, not 1.4 Bil is the rumored point of no return.
