CHICAGO (Reuters) - Delta Air Lines (DAL.N) on Tuesday said it will take a $1.65 billion noncash charge in the second quarter largely related to income taxes, sending its shares lower amid heightened concerns about the carrier's financial woes.þþThe No. 3 U.S. airline, which has warned it could face bankruptcy without major cost cuts, said it will incur a $1.53 billion charge related to deferred income taxes and a $117 million charge for its pilot pension plan as more pilots than usual retired.þþThe charges do not affect Delta's liquidity, which Wall Street analysts are closely monitoring to assess the struggling carrier's financial health.þþ``While these charges did not affect our cash position as of June 30, 2004, they may prompt further concern about Delta's financial condition,'' Chief Financial Officer Michael Palumbo wrote in an internal memo. ``The need to address our uncompetitive cost structure and related financial issues grows more urgent with each passing day.''þþThe Atlanta-based airline is negotiating with its pilots -- the highest-paid in the industry -- about concessions in a bid to avoid bankruptcy.þþThe head of the pilots union told Reuters recently he was looking for ways to make pilots more productive. The Air Line Pilots Association is preparing to make a formal offer of concessions in the next few weeks.þþ``If anything, the charge should send even stronger signals to Delta's pilots that the company's financial position is precarious,'' Credit Suisse First Boston analyst James Higgins wrote in a note. ``Getting Delta's costs to where they need to be in order to avoid bankruptcy is not a given.''þþShares of Delta dropped 7 percent on Tuesday, leading other airline stocks lower. A Smith Barney downgrade of AMR Corp. (AMR.N) also weighed on the sector.þþPERILOUS PREDICAMENTþþDelta, which has seen all three of its top executives replaced this year, said its financial performance in 2004 has been affected by higher fuel costs and lower-than-expected domestic yields, or average fares.þþ``As a result, it is now unclear as to the time of when the company will be able to generate sufficient taxable income to use its deferred income tax assets,'' Delta said.þþThe airline also said it will stop recording income tax benefits on its statement of operations for the ``foreseeable future.''þþStandard & Poor's analyst Philip Baggaley said the charges were not unexpected and did not affect the rating agency's outlook on the company.þþ``Of greater concern than Delta's large noncash charges are its continuing heavy losses and cash outflow, and the long delay in securing needed labor cost concessions from its pilots,'' he said.þþSmith Barney analyst Daniel McKenzie said in a research note that labor costs and competition from low-cost carriers were major risks facing Delta, predicting management may need to take a more confrontational stance to secure about $1 billion in cost cuts from pilots.þþDelta shares were down 47 cents or 7 percent at $6.28 on the New York Stock Exchange on Tuesday afternoon, off an earlier low of $6.24.þþþþ
Source: NY Times
