Delta's Bankruptcy Exit Plan Clears Hurdle

Delta now begins to seek its creditors' backing for the plan.


A week after defeating a hostile takeover bid, Delta Air Lines got clearance to start taxiing toward a departure from bankruptcy court this spring.

After a short hearing Wednesday in New York, U.S. Bankruptcy Judge Adlai Hardin approved Delta's description of its reorganization plan, allowing the Atlanta carrier to begin seeking creditors' backing for the plan.

The decision marks a "momentous" milestone in Delta's nearly 17-month-long trip through Chapter 11 proceedings, said the airline's lead lawyer, Marshall Huebner.

Delta, which said it plans to seek final approval of its reorganization plan at an April 25 hearing, plans to mail notices to creditors in about two weeks.

Creditors will have until April 9 to vote on the plan, which includes the company's plans for issuing new stock to creditors when it emerges.

Delta needs the backing of at least half of the carrier's suppliers, lenders and other unsecured creditors, as well as votes representing at least two-thirds of the dollar value of claims.

One group that won't get a vote: Delta's current shareholders, whose stock will become worthless.

Bankruptcy experts say companies often face a challenge in corraling enough support as various creditors jockey for better financial position. However, Delta seems confident in the wake of its victory over US Airways, which unsuccessfully tried to get Delta's biggest creditors to back a $10 billion merger proposal.

Delta said all of the court-appointed creditor committees, including the key committee of unsecured creditors, support its exit plan.

"Having received another crucial and tremendous vote of confidence in our plan and our people, we remain on course to exit bankruptcy this spring --- possibly as soon as late April ---as a strong, fiercely competitive airline," Delta's chief financial officer, Ed Bastian, said in a company statement.

Delta Chief Executive Gerald Grinstein hailed Wednesday's ruling and said in a memo to employees that emergence from Chapter 11 will bring "real, tangible benefits" to them.

"As we have said many times, Delta people at every level can expect to share in the success they have worked to achieve --- including the opportunity to participate in the long-term sustained profitability we are working to establish," Grinstein said in the memo.

Until recently, Delta's course didn't look so clear. Just over a week ago, Wednesday's hearing potentially promised a lot of fireworks. Several airports and other creditors had filed objections to Delta's disclosure statement of the plan. Delta's unsecured creditors committee still hadn't taken a position on US Airways' takeover bid.

However, the creditors committee voted last week to support Delta's plan, and US Airways withdrew its offer. Delta also announced that six major Wall Street firms had committed to provide $2.5 billion in exit financing.

By Wednesday's hearing, all objections had been resolved or withdrawn. Delta's suddenly smooth flying, partly aided by a relatively favorable economy, high fares and tamer fuel costs, stands in contrast to the bumpy passages of some other recent airline bankruptcies.

United, which was struggling to emerge after three years in bankruptcy amid record fuel prices, faced dozens of objections at its hearing that later translated into prolonged negotiations to win backing for its exit plan.

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