Delta Issues Warning on Charges in 2nd Quarter

Delta Air Lines Inc. warned Tuesday that it would post $1.65 billion in noncash charges in the second quarter and that it would no longer recognize income tax benefits, which would widen its net losses. Its shares skidded nearly 10%.

The charges are being taken in part because Delta’s actual and projected financial performance for 2004 has been significantly hurt by higher-than-expected fuel costs and lower returns from its U.S. business, Chief Financial Officer Mike Palumbo said.

As a result, he said, it was unclear when the Atlanta-based company would be able to generate sufficient taxable income to use its deferred income tax assets, which involve certain expenses that Delta can use for income tax deductions.

Some of the charges are also due to an increase in pilot retirements, Delta said. Last week, the pilots union said about 300 pilots retired in June. The retirements leave the airline with about 7,500 active pilots. About 250 pilots retired in September.

Shares of Delta fell 66 cents, or 9.8%, to $6.09 on Tuesday on the New York Stock Exchange.

Ray Neidl, an analyst with Blaylock & Partners in New York, said the announcement meant that Delta’s loss would be higher than expected when it reports results Monday.

Analysts surveyed by Thomson First Call were expecting a loss of $1.51 a share before unusual items.

Neidl said the airline’s outlook remained shaky.

“If Delta doesn’t get the cost reductions it needs by the end of the year, it’s going to be in bankruptcy anyway,” Neidl said.

In a memo to employees, Palumbo said the charges would not affect Delta’s cash position in the short term, but they “may prompt further concern about Delta’s financial condition.”

“As we have stated on numerous occasions in recent weeks, the need to address our uncompetitive cost structure and related financial issues grows more urgent with each passing day,” Palumbo said.

When Delta reports its second-quarter results, it will record a $1.53-billion noncash charge related to deferred income taxes. It also will record a $117-million noncash settlement charge related to the company’s defined benefit pension plan for pilots as a result of higher-than-average retirements.

Delta has lost more than $3 billion and laid off 16,000 employees in the last three years. It is seeking deep wage concessions from pilots as part of its recovery.