Business

(AP) Delta Air Lines Inc., the nation's third-largest carrier, said Wednesday its loss widened in the first quarter to a whopping $6.39 billion because of soaring fuel prices and the steep decline in the company's market value.

Northwest Airlines, which will be acquired by Delta to create the world's largest airline, reported a $4.1 billion loss in the first quarter.

Northwest

Northwest Airlines reported a fourth-quarter loss of $4.14 billion on a massive accounting charge and high fuel prices, and it said it will likely cut more flying.

The Eagan-based carrier lost $15.78 per share. The loss included a $3.9 billion charge to write down goodwill because of the decline in Northwest's share price. During the same period last year it lost $292 million, or $3.34 per share.

Sales rose to $3.13 billion from $2.87 billion.

Excluding the accounting charge and losses from some fuel hedges, Northwest said it would have lost $191 million.

Analysts surveyed by Thomson Financial predicted Northwest would lose 30 cents per share on revenue of $3.13 billion. Not counting the accounting write-down Northwest said it would have lost 78 cents per share.

Last week, Northwest agreed to be acquired by Delta Air Lines Inc. to create the world's largest carrier. Delta reported a $6.39 billion loss on Wednesday. Like Northwest, almost all of it was for an accounting charge.

But high fuel prices have played havoc with both airlines as well. Northwest said the price it paid for jet fuel rose almost 50 percent to $2.77 per gallon in the first quarter. Its fuel bill rose by $445 million, or 57 percent.

Fuel was Northwest's largest cost, at 38 percent of its operating expenses for the quarter. As of April 21 it had $115 million in fuel hedges for the rest of the year.

Northwest collected 5 percent more revenue for each seat it flew. But that wasn't enough to overcome rising fuel prices, President and Chief Executive Doug Steenland said. He said ticket prices need to rise to keep pace.

Northwest is looking at its options with higher fuel prices and "this likely will include further capacity reductions," Steenland said on a conference call. The company has said previously that because of fuel prices it will do 5 percent less domestic flying than it had planned, beginning in September. Its current plan for the rest of the year calls for a reduction of at least 7.5 percent in mainline domestic flying, and an increase of at least 8 percent in international flying, for an overall increase of 2 percent to 3 percent.

Northwest has been successful in charging passengers more for international flights. But many of the domestic fare increases attempted by Northwest and other airlines have been rolled back after one airline or another decided not to match it.

The goodwill write-down was tied mostly to the sharp drop-off in the value of Northwest's stock since it emerged from bankruptcy protection in May. It closed its first day of trading at $25.15. On Wednesday, it was down a nickel at $7.42.

Northwest also suggested that it may lose money for the full year. It said it did not record a tax benefit for its first-quarter loss because to do so, it "would be required to have a high degree of confidence that it would record a full-year profit."

The company said it had $3.2 billion in cash when the quarter ended on March 31, up from $2.4 billion a year ago.

Delta

Delta's results badly missed Wall Street expectations, despite a 12 percent increase in sales.

The Atlanta-based company said the loss is equivalent to $16.15 a share. That compares with a loss of $130 million that Delta reported in the January-March quarter a year ago, when it was still in bankruptcy.

Excluding special items, primarily a $6.1 billion non-cash charge relating to the decline in Delta's market value due to sustained record fuel prices, the airline lost $274 million, or 69 cents a share, in the first quarter.

In a memo to employees Wednesday, Ed Bastian, Delta's president and chief financial officer, said the airline expects some of its peers in the industry to record similar adjustments. A spokeswoman said Delta would have recorded the charge regardless of the tie-up with Northwest.

Analysts were expecting a Delta loss of 49 cents a share, excluding one-time items.

Revenue in the quarter rose to $4.77 billion, from $4.24 billion in the same period a year ago. Delta shares rose 9 cents, or 1.3 percent, to $6.89 in morning trading.

The company said its first-quarter loss before special items was driven by a $585 million year-over-year increase in the cost of fuel.

When it exited Chapter 11 protection, Delta projected its stock would be worth $9.4 billion to $12 billion in all, but that was assuming the price of crude would be at $70 per barrel.

Gas and oil prices pushed further into record high territory Tuesday, with crude nearing $120 a barrel. Retail gas reached a national average of $3.51 a gallon for the first time. Delta's current market value is roughly $2.7 billion, based on 395.6 million shares outstanding, which include shares not yet distributed to some creditors from its bankruptcy.

Delta announced last week that it would acquire Northwest Airlines Corp. in a stock-swap deal, which still must be approved by regulators and shareholders.

"Our need to respond to the pressures of dramatically rising fuel costs and a softening U.S. economy drove us to take a closer look at all options to protect Delta's future," Chief Executive Richard Anderson said in a statement. "The merger with Northwest will create an airline with the size, scale and global presence to weather economic downturns and compete long-term in the global marketplace."

The airlines are trying to sell the deal to the public, employees, federal regulators and Wall Street. So far, investors appear unconvinced.

The stock declines since the deal was announced have shaved roughly $1.2 billion off the value of the deal to Northwest shareholders, who would get 1.25 Delta shares for every Northwest share they own.

Anderson will head the combined airline, which would be called Delta and be based in Atlanta.

The carriers have said they have no current plans to cut more U.S. flights beyond what they have disclosed separately. Analysts have said that limits the cost savings or higher fares the airlines could reap from the deal.

Northwest and Delta haven't ruled out further capacity cuts in the future if fuel prices keep rising. Delta reiterated that sentiment Wednesday, saying it is continuing to evaluate the fuel and demand environment "and will make proactive changes quickly if economic conditions warrant."

Meanwhile, pilots at Delta and Northwest are looking to resume talks on merging their work forces. The Air Line Pilots Association said negotiators will aim to work out a joint union contract before the two airlines combine. Once that is done, the chairmen of the two unions say they want to negotiate a seniority agreement.

The lack of a seniority agreement is what kept them from making a deal before Delta and Northwest announced plans to join.

Northwest pilots had vowed to kill the tie-up because they were left out of contract talks at the end. They say they still oppose the combination, but that a joint contract with Delta pilots would be a step in the right direction.

As of March 31, Delta said it had $3.6 billion in unrestricted liquidity, including $1 billion available under a revolving credit line.

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