Delta Tentatively Ordered to Pay $2 Million Monthly in Collateral Flap Over Jets

A bankruptcy judge on Wednesday tentatively ordered Delta Air Lines Inc. to pay a bondholders' trustee $2 million a month as a cushion against any drop in the value of jets the carrier pledged as collateral.

Bankruptcy Judge Adlai Hardin also provided guidelines to how the carrier should maintain and adequately protect the value of 32 planes Delta pledged in the 2004 bond deal. He is expected to formally rule on the guidelines in coming days.

The trustee, Wells Fargo Bank N.A., had asked the airline to ensure proper maintenance of the jets. Wednesday was the second day of hearings on this issue.

As a trustee, Wells Fargo ensures that Delta bond holders receive timely principal and interest payments each month. The bond holders have not received any of these payments, about $250 million, since Delta's September bankruptcy filing in New York. That money is not expected to be paid back until the Atlanta-based company emerges from Chapter 11 bankruptcy protection.

Wells Fargo is worried that without proper maintenance, the planes' value would diminish and be worth less than Delta owes the bondholders.

Also on Wednesday, Delta asked the bankruptcy court's permission to reinstate its pre-bankruptcy severance practices for 144 officers and director-level employees.

The company said that under the program, severance pay of six to 12 months would be granted to certain employees whose jobs are terminated as a result of specified organizational or business changes. Employees who quit or are fired for cause would not receive severance.

Delta spokesman John Kennedy described the policy as "conservative by industry standards," with the proposed level of severance about half of what UAL Corp.'s United Air Lines had for the same management levels while in bankruptcy.

If all 144 employees were terminated under the program, the cost to Delta would be $14.2 million, the company said in its filing. CEO Gerald Grinstein and Chief Operating Officer James Whitehurst will not participate in the program.

The company said failure to implement the severance plan could increase unwanted attrition among upper-level employees.

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