Delta Faces Battle over Leases

Delta Air Lines Inc. faces a battle over at least $380 million in tax and other benefits claimed by companies that financed its acquisition of more than 50 aircraft.

In papers filed with the U.S. Bankruptcy Court in Manhattan, Delta has said it's eager to avoid the quarrels that have surfaced in other big airline bankruptcies over tax benefits owed to aircraft financiers. So the carrier asked a judge to set procedures that would permit 'a coordinated and efficient litigation of these complicated issues.'

But a large group of financiers, including Comcast Corp., AT&T Credit Holdings Inc. and Banc of America Leasing & Capital LLC, said Tuesday that those procedures would only make matters worse.

'The prospect for chaos and the cost that comes with chaos is too obvious ... to ignore,' the financiers said in court papers. The financiers, who engaged in leverage-lease transactions with Delta, said they have $380 million in claims against the airline.

Leverage-lease transactions are complex financing deals that have become common in the airline industry because they provide big benefits to airlines and financiers alike. Financiers get tax deductions for interest accrued on the deals, and they get the right to collect compensation for tax losses if the leases are scuttled. Airlines, meanwhile, obtain their aircraft on relatively easy financing terms.

In recent years, the tax benefits have attracted unusual companies into the aircraft-leasing business. Walt Disney Co., for example, helped UAL Corp., the parent of United Airlines Inc., acquire aircraft through leveraged-lease transactions before UAL filed for bankruptcy protection in 2002.

But big airline bankruptcies have triggered big fights over the benefits. In 2003, UAL scuttled its lease on a Boeing 757 jet that was partly owned by Disney. As the airline was preparing last year to exit bankruptcy proceedings, it faced billions dollars in claims from Disney and other financiers of its aircraft. UAL eventually settled those claims for about $150 million.

Delta's aircraft financiers said in their court papers Tuesday that they expect to collect only a 'very small' portion of their claims against the airline, which has been in Chapter 11 reorganization since September 2005.

The financiers asked U.S. Bankruptcy Judge Adlai S. Hardin Jr., who is overseeing Delta's bankruptcy reorganization, to reject Delta's proposed procedures. Hardin is scheduled to consider the matter at an Oct. 10 court hearing.

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