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Delta exits bankruptcy after 19-month restructuring

NEW YORK (Reuters) - Delta Air Lines Inc. emerged from bankruptcy on Monday, following a 19-month, $3 billion restructuring during which the carrier thwarted a hostile takeover, cut costs and jobs, and eliminated some unprofitable routes.

Delta Air Lines Chief Executive Officer Gerald Grinstein (R) celebrates with Delta Air Lines employees after the announcement that they are emerging from bankruptcy in Atlanta, April 30, 2007. The new plane paint scheme was also unveiled. REUTERS/Tami Chappell

The third-largest U.S. airline also added some 60 international routes in an effort to offset brutal low cost competition in the United States that has pressured the airline industry since the September 11, 2001, attacks.

Atlanta-based Delta is much leaner after reducing capacity and some $1 billion in labor costs by restructuring union contracts and eliminating 6,000 jobs.

Its chief executive, Gerald Grinstein, plans to leave the leadership post after a successor is found. Last Monday, the carrier posted a narrower first-quarter loss compared to a year ago, boosted by higher fares and the cost cuts.

Delta expects to cut net debt by more than half to $7.6 billion at the end of 2007 from $16.9 billion at June 30, 2005. It also forecast a pretax profit, before special items, of $816 million this year, after a loss of $452 million in 2006.

The carrier rejected a hostile takeover bid from US Airways Group in January, successfully rallying creditors to its go-it-alone strategy.

Delta’s exit from bankruptcy leaves Northwest Airlines Corp. as the only major U.S. airline under Chapter 11 protection. Northwest expects to leave bankruptcy by the end June.

Burdened by restructuring expenses, Northwest on Monday posted a first-quarter loss of $292 million, or $3.34 per share, compared to a loss of $1.1 billion, or $12.65 per share, in the same period a year earlier.

Excluding reorganization items, Northwest posted a profit of $100 million, reversing a year-ago loss of $129 million.

STALLING RECOVERY

While the U.S. airline industry turned a profit last year for the first time in five years, Delta emerges from reorganization amid signs that travel demand, which fueled the industry’s recover, is softening.

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A number of U.S. airlines, including Southwest Airlines Co. and JetBlue Airways Corp., have recently complained of sluggish bookings ahead of the busy summer travel season.

But Delta believes its expansion into lucrative international markets and its lower costs will help it overcome a downturn.

“Delta used the Chapter 11 process to completely transform every aspect of our business,” said Chief Financial Officer Edward Bastian in a statement. “That will enable us to weather future volatility in the airline industry.”

Credit rating agency Standard & Poor’s raised Delta’s rating to “B,” the fifth-highest junk rating, from “D,” or default.

“Delta’s relatively rapid and successful reorganization leaves the airline with lower operating costs, improving revenue generation and a reduced debt load,” S&P said in a statement.

NEW LOOK

Underscoring its transformation, Delta on Monday unveiled an updated logo.

The logo, a variation of the airline’s well-known triangular icon, reflects the company’s new thriftiness. It requires four different colors rather eight in the previous version, lowering painting costs, the company said.

Delta expects to replace airport signage by the end of this year and repaint its fleet of more than 900 aircraft within four years.

“This is a great day in Delta’s history,” CEO Grinstein said in a statement.

Changes at Delta are far from over. The company has said it may sell its Comair unit, which provides the carrier with regional connection service.

In a sign that it was reducing its dependence on Comair, Delta signed a 10-year agreement with Pinnacle Airlines Corp. to provide regional service. Pinnacle, which also flies for Northwest, will fly 16 regional jets for Delta starting in December.

NEW SHARES

Delta will issue new common shares in payment of bankruptcy claims and as part of a post-emergence compensation program for Delta employees, the airline said.

Those new shares fell 2.2 percent to $20.46 in trading on a “when issued” basis, giving it a market value of about $8.1 billion -- the second highest for a U.S. airline after Southwest Airlines.

Regular trading in the new stock is expected to begin on the New York Stock Exchange on May 3 under the symbol “DAL”.

Delta’s old shares, which had been trading over-the-counter, are being canceled. Holders of these shares will receive nothing under the reorganization plan, the company said.

To finalize its exit from Chapter 11, Delta said it will close on a $2.5 billion exit-financing facility led by banks including JPMorgan, Goldman Sachs, and Merrill Lynch.

The financing package will be used to repay the company’s $2.1 billion debtor-in-possession loan, make payments associated with exiting bankruptcy and increase liquidity, Delta said.

Additional reporting by Neil Shah and Mathew Veedon

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