"Please fasten your seat belts; we are expecting a little turbulence" -- this well-known in-flight request might as well be heard throughout Delta Air Lines' (NYSE:DAL) corporate offices. The No. 3 U.S. airline has backed itself into a corner that few companies could fight their way out of. However, CEO Gerald Grinstein holds a different view, insisting that bankruptcy is easily avoidable. Should shareholders stand by their man, or should they remain leery?

Whenever a company gets into dicey situations, shareholders must return to three key areas to assess its prospects: management, operations, and financials. Once Delta's investors have a good feel for the future of these fundamentals, they can better decide if Delta is doomed or, indeed, on the rebound.

Who's who?
With the rumor of bankruptcy lingering, Delta's shareholders depend on management to lift the company out of its financial troubles and place it on solid footing -- no easy job. Does Delta's team have what it takes? Lately, it has shifted around so much that it's been hard to tell if this is an airline giant or a chess match. Three of Delta's top executives have excused themselves over the past four months. Former CEO Leo Mullin announced his retirement after getting heat over his first-class salary. Former President Fred Reid and CFO Michele Burns have turned in their wings as well.

So whose shoulders do the future of this company rest on? Well, Jack Smith has assumed the role as chairman. Grinstein stepped in as CEO in January, promising great opportunities on Delta's horizons. This sounds like a lot of soothing talk, as any Foolish investor knows the company is in a bad position. Still, after having spent 16 years on the board, Grinstein has the know-how to guide the company in the right direction. He is currently seeking a replacement to stand by his side as CFO. Shareholders should be pleased with their new captains, or at least their vow to put a plan together that is in investors' best interests.

And you complain about your bills?
Labor costs continue to plague Delta, which pays higher wages than any of its major competitors. Sound familiar? It just so happens that UAL's (OTC BB: UALAQ.OB) United Airlines was forced into bankruptcy over the same issue. And in 2003, Delta dished out nearly half of its annual revenues as salary. Clearly, this is a problem since there is no way to return to profitability with outlandish expenses such as these. In response, Grinstein and crew have asked its pilot union for a minimum of 30% pay cuts for 2004. The union rejected the offer and indicated it would accept a 9% reduction, putting Delta in a tight position.

Believe it or not, it gets worse. Delta and many other airlines were forced to have multiple layoffs after 9/11, with one stipulation. When Delta's passenger numbers return to levels before the attacks, then the misplaced workers can have their jobs back. Now that people are flying again, Delta could be forced to rehire more than 1,000 pilots, costing the company more than $115 million more per year. The fact is, Delta's costs will continue to be a thorn in the shareholders' sides well into the future. Grinstein is currently negotiating with the union to resolve these issues, but he is fighting an uphill battle. There is hope, though. The labor union of AMR (NYSE:AMR), parent of American Airlines, showed signs of gratitude in granting sizeable concessions that will soon help it return to profitability.

The good news about operational expenses is that Delta has done a good job hedging fuel costs. Its program alone saved the company more than $30 million in the first quarter of 2004. Despite these savings, Delta still reported a $383 million loss incurred during the same period. In fact, the company ended this quarter with $2.2 billion in unrestricted cash, which was $500 million less than it started the quarter with.

Where did this cash go? Well, that leads us to two other expensive quirks that concern shareholders -- Delta's contributions to its beastly pension plan and debt repayment. The company has $445 million in pension requirements for 2004 -- $325 million of that has already been funded this year, financed through a hefty convertible debt offering. Speaking of that, Delta is loaded with debt, which continues to escalate. Furthermore, Delta's ratings have been cut to a point where it is getting very costly for the company to borrow. Heightening competition from low-cost carriers such as Southwest (NYSE:LUV) and JetBlue (NASDAQ:JBLU) has also hindered Delta's ability to raise airfares. Group all of these problems with the fact that Delta has no pricing power, and you have one ugly situation.

The naked numbers
First-quarter operating revenues increased more than 4% compared to this time last year. Analysts estimate revenues to be $14.5 billion in 2004, a 9% increase from last year. If these expectations are met and labor costs reduced by 9%, as the union suggested, then wages will be reduced to about 40% of revenues. This would be a good improvement from where Delta is now, and it just might put the airline on the road to profitability. Still, Delta is operating on a thin line. The company has negative working capital and a current ratio of 0.75, which doesn't give it much room for error. Everything from here on out must be done to perfection (no pressure, Grinstein!).

Delta will continue to have difficulty meeting current obligations until decisions are made on cost reductions. Due to lack of cash flow, Delta has been forced to increase long-term borrowings year after year to more than $11.5 billion. That's almost equal to half of its total assets owned. An improvement must be made there. Grinstein needs to continue to push wage reductions downward until the company reaches 30%-35% of revenues, so he can jump back into the pricing game and pay down debt. Until then, Grinstein and shareholders have to watch from the sidelines.

Fool contributor Cam Goodwin does not own stock in any of the companies mentioned and is not afraid of flying. The Fool is investors writing for investors.