L.A. Says Delta Lease Plan Can't Be Approved

L.A., Denver and other airport operators object to Delta's disclosure statement in its reorganization plan, which grants the carrier too much authority to reject airport leases.

The city of Los Angeles said in a bankruptcy court filing Thursday that Delta Air Lines Inc.'s reorganization plan can't be approved because of undue authority it gives the company to reject certain leases.

The city made the comments in an objection to the disclosure statement to Delta's reorganization plan. Denver, Palm Beach County, Fla., and the operator of a Puerto Rico airport also objected, as did an ad hoc committee of creditors; and some banks. Thursday was the objection deadline.

If the disclosure statement, which details Delta's operations, is still approved after a hearing currently scheduled for Feb. 7, the Atlanta-based company would be permitted to begin soliciting votes to approve its reorganization plan calling for it to emerge from bankruptcy as a standalone carrier.

The city of Los Angeles said that Delta's disclosure statement is accompanied by a reorganization plan that is "not confirmable as a matter of law and, thus, should not be approved because proceeding with a solicitation of the plan in its present form would waste valuable judicial and estate resources."

The city owns Los Angeles International Airport and Ontario (Calif.) International Airport, where Delta conducts operations and maintains leases.

The city said in its filing that Delta's disclosure statement fails to describe the potential impact that termination of its Terminal 5 lease at Los Angeles International Airport would have on the company's operations and financial performance. The filing said that the city is seeking, subject to court approval, to terminate the lease.

Without the information, creditors, like the city of Los Angeles, can't accurately evaluate the feasibility of Delta's reorganization plan, the objection says.

The objection by Los Angeles came on the same day Delta featured on its Web site its expanded service to and from Los Angeles International Airport. "Here you come, there you go. More flights than ever in and out of Los Angeles," Delta said on the Web site.

The city of Los Angeles also said in its filing that Delta's reorganization plan improperly gives Delta broad discretion to defer the effectiveness of its decisions to assume or reject certain unexpired leases and contracts beyond the effective date of the plan.

Delta spokesman Michael Freitag described the objection as a "classic issue that comes up in every Chapter 11 case."

"Are they objecting to the reorganization plan and disguising it as an objection to the disclosure statement?" Freitag said. "That's an issue that the lawyers will have to address at the hearing."

Only the disclosure statement is at issue currently. A separate hearing would be held to approve the reorganization plan.

"We believe the disclosure statement meets the appropriate standards for adequacy under the bankruptcy code, and we're confident any objections to the disclosure statement will be resolved in a manner that allows Delta to remain on schedule to emerge from Chapter 11 in spring 2007," Freitag said.

Also Thursday, the city and county of Denver filed a limited objection to Delta's disclosure statement. In court papers, Denver said provisions of the disclosure statement and reorganization plan concerning interest on tax claims violate the bankruptcy code, thus making Delta's reorganization plan "unconfirmable."

Denver said Delta's reorganization plan and disclosure statement appear to limit Denver's ability to collect interest, penalties and fees on administrative tax claims incurred by Delta since it filed for bankruptcy.

Denver is asking that Delta's request for approval of its disclosure statement be denied.

Palm Beach County, Fla., and the operator of Orlando, Fla., International Airport filed a request to join the objections filed by Los Angeles and Denver. Separately, the operator of the Luis Munoz Marin International Airport, located in Carolina, Puerto Rico, filed a limited objection to Delta's disclosure statement. The Bank of New York, Wells Fargo Bank Northwest N.A. and an ad hoc committee of creditors also filed objections.

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