As I'm sure all you avid cross-country fliers are aware, Delta (NYSE:DAL) has been teetering on the brink of bankruptcy for some time now. In an effort to increase cash flow, Delta recently announced that it will be selling Atlantic Southeast, one of its regional subsidiaries, to SkyWest (NASDAQ:SKYW) for $425 million. The company plans to use $100 million of the sale to reduce some of its own debt. This move definitely gave the stock a punch up, with Delta's beleaguered stock price increasing 14% on the day of the announcement.
Unfortunately, Delta doesn't seem to deserve the market's enthusiasm -- the company pointed out a need to fund a $750 million cash deposit to continue processing ticket sales using credit cards. Furthermore, in its quarterly filing, the company remained committed to a plan to save $5 billion annually but warned that there was uncertainty whether it could implement these goals in time to prevent the slide into bankruptcy.
With crude oil reaching record highs, Delta has had trouble keeping its operating costs down and posted a second-quarter loss of $382 million, or $2.64 a share. As costs continue to creep higher, it seems increasingly unlikely that Delta's efforts to reduce its operating costs will succeed. Gerald Grinstein, Delta's chief executive officer, conceded that "record-high fuel prices and other factors out of our control during the quarter outpaced our transformation initiatives."
All of this leaves Delta in a desperate position to get relief from its debt maturities. Standard and Poor's announced that it may lower the debt rating on Delta even further from its current CC (10 levels below investment grade). S&P has also recently replaced Delta with Public Storage (NYSE:PSA) on the S&P 500 and with Caterpillar (NYSE:CAT) on the S&P 100 index.
With increasing competition from low-cost carriers such as JetBlue (NASDAQ:JBLU) and Southwest Airlines (NYSE:LUV), combined with unrelenting increases in fuel costs and low-grade debt, it seems that Delta's efforts will likely prove too little too late.
JetBlue is a Motley Fool Stock Advisor recommendation.
Fool contributor Tarek Sultani is a freelance writer and contractor for the Federal Aviation Administration. He does not have a financial interest in any of the companies mentioned in the article.
