Reviving Delta Cost Tens of Millions

United Air Lines racked up about $335 million in expenses during its more than three-year-plus Chapter 11 case compared to the near $200 million Delta has spent.


Fixing a broken balance sheet isn't cheap.

As Delta Air Lines turns onto final approach in its bankruptcy case this week, the company has spent more than $137 million on legal fees and related expenses, and the total could push $200 million by the time the dust settles, executives say. That's enough to cover annual salaries for about 3,000 mechanics.

Delta goes to court Wednesday for a hearing on its reorganization plan, with confirmation considered a virtual certainty since creditors have overwhelmingly endorsed the plan. It will be a final gathering for the platoons of lawyers and financial consultants who have helped Delta chop some $10 billion in debt off its balance sheet during restructuring talks with various creditors.

Through the first 16 1/2 months of its Chapter 11 case, Delta's bankruptcy-related bills averaged more than $8 million a month. The biggest charges were from its lead law firm, New York-based David Polk & Wardwell, which had billed Delta for $36.5 million through the end of January, according to court filings.

Still, Delta actually has gotten off pretty lightly compared to some other recent Chapter 11 cases of similar size, legal and industry experts say.

United Air Lines racked up about $335 million in such expenses during its more than three-year-plus Chapter 11 case, which ended early last year, noted Atlanta bankruptcy attorney Darryl Laddin.

"While the cost of the [Delta] restructuring may appear staggering," he said, "it's not unreasonable given the size of the case, the complexity of the case, and the returns to creditors."

Ed Bastian, Delta's chief financial officer, says Delta got its money's worth from the reorganization, which he says will result in Delta exiting with the second-highest market value in the airline industry, after perennially profitable Southwest Airlines.

"Would I have preferred less? Of course," Bastian said of the bankruptcy-related expenses, which could dribble out for another year as the airline deals with remaining claims disputes and related litigation.

Still, Bastian said Delta has reorganized its operations more quickly and more cheaply than United, a similarly large airline, even with the distraction of fighting off a surprise takeover offer from US Airways that surfaced late last year.

"We always stayed in control of the process. We never let the lawyers get in charge," he said.

Bastian predicted easy approval Wednesday in the hearing before Delta's New York bankruptcy judge, Adlai Hardin. The airline says it will formally exit bankruptcy April 30 with the completion of its exit financing deal. Six major Wall Street firms have committed to provide $2.5 billion in such financing.

The airline is already planning a celebration that day at its Atlanta headquarters. Its new shares of stock, issued initially to creditors and employees as compensation for their financial sacrifices, will be listed a few days later on the New York Stock Exchange.

"It feels great," Bastian said of starting a new chapter in the airline's history. "It's very heartwarming to be able to see Delta people prevail," he added, calling it "my highest professional moment."

Along the way, Delta engineered some major cost-savings and operational improvements while first going through a tense face-off with its pilots union over concessions, then fighting off US Airways' hostile takeover bid several months later.

In addition to slashing debt, Delta simplified and shrank its aircraft fleet and retooled routes to emphasize better-paying overseas flying. It also squeezed the pay, pensions and other benefits of its active employees and retirees, cutting pay rates twice and terminating its pilots' pension plan.

Those moves angered plenty of retired pilots who lost much of their monthly pension benefits. Current shareholders also aren't happy; their Delta stakes will be wiped out when the company emerges from bankruptcy.

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