Delta Air lines sells off arm to Skywest in bid to cut debts

DELTA Air Lines is to sell its Atlantic Southeast subsidiary to rival Skywest for about £235 million to help reduce its debt levels.

But the third largest airline in the United States disclosed a steadily worsening financial picture and did not rule out seeking bankruptcy protection.

Since the September 11 attacks on the US nearly four years ago, Delta has lost in the region of 6 billion.

Delta said the all-cash deal would enable it to pay off more than 55m in debt.

But the agreement would not provide as much cash as it needs to turn its fortunes around. Most recently the carrier has been rocked by record high fuel prices of more than $66 a barrel.

Delta chief executive Gerald Grinstein said the sale met "important operational and financial objectives".

"As we continue to implement Delta's transformation plan, this transaction not only enhances our ability to operate our business as efficiently and cost effectively as we can, it also improves Delta's liquidity position," he added.

Airline analyst Ray Neidl of Calyon Securities said Delta's sale of Atlantic Southeast was a good start, but more needed to be done.

"They have to somehow get some relief from debt maturities. This gives them a little space to get the other things going."

The airline added that, despite the sale, its financial liquidity would still "decline substantially" in 2005.

"If our liquidity declines to an unacceptably low level or we conclude that a competitive cost structure cannot be achieved through an out-of-court restructuring, we will need to seek to restructure under Chapter 11," the group added.

Chapter 11 gives a US company time in which to rearrange its finances while continuing to trade. Speculation that Delta could soon file for Chapter 11 bankruptcy protection came after it delayed the publication of its latest quarterly results.

The rumours were fuelled by Merrill Lynch analyst Michael Linenberg publicly advising clients to sell Delta stock.

Standard & Poor's analyst Jim Corridore said: "We still maintain that we see an extremely high risk of bankruptcy over the next six to 12 months."

A number of other US airlines have gone into Chapter 11 protection over the last few years, including United, US and Aloha.

Continental Airlines has also faced financial difficulties in the past. Europe has long argued that Chapter 11 gives US firms an unfair advantage. The European Commission says Chapter 11 - which does not apply in Europe - is too lenient, and unfairly allows too many struggling US firms to avoid bankruptcy.