Delta Airlines 2005 Annual Report Download - page 35

Table of Contents
Act. However, we cannot predict the outcome of any effort we might undertake to obtain court relief to prevent or stop a strike or
other forms of work disruption. A strike or other form of significant work disruption by ALPA would likely have a material negative
impact on our ability to continue operating our business and would trigger an event of default under our post-petition financing
agreements if all or substantially all of our flight and other operations are suspended for longer than two days. As a result, we could be
required to cease operations permanently.
Restructuring of Aircraft Fleet. A substantial portion of the cost savings from our Chapter 11 proceedings targeted in our business
plan arises from reductions in aircraft costs and fleet simplification. We are negotiating with many of our aircraft lessors and lenders
to restructure existing financings to reduce aircraft lease and ownership costs to better reflect current market rates. In February 2006,
the Bankruptcy Court approved a term sheet we negotiated with a group of creditors with respect to financing transactions for 88
Mainline aircraft that would result in approximately $200 million in annual savings for us over the next several years compared with
our existing rent and debt service obligations for those aircraft; these transactions are subject to completion of definitive
documentation and certain other conditions. We have also reached agreements in principle to restructure a substantial number of other
Mainline aircraft and some regional jet aircraft. We are in negotiations to restructure a substantial number of other regional jet aircraft.
These transactions will be subject to Bankruptcy Court approval. In addition, we must enter into definitive documentation for all
agreements in principle that we reach, and satisfy certain conditions. To the extent that we are unable to restructure additional
financings or enter into definitive documentation, lessors or lenders may seek to repossess aircraft. The loss of a significant number of
aircraft could result in a material adverse effect on our operating and financial performance. See Note 9 to the Notes to the
Consolidated Financial Statements for further information about our aircraft leases.
We have also rejected leases, relinquished possession of, returned, and sold certain aircraft to adjust our fleet size to more closely
match our needs and to reduce costs. In addition to two aircraft types that we eliminated from our fleet in January 2006, we intend to
eliminate two more aircraft types from our fleet by the end of 2006.
Real Estate and Special Facility Bond Restructurings and Recharacterization Litigation. As part of our business plan, we are
evaluating our real estate needs. In appropriate cases, when possible, we are taking actions to right-size our facilities, reduce real estate
related costs and restructure lease and debt obligations. Among others, such actions may involve the sale of certain properties, the
renegotiation or rejection of certain leases, litigating whether certain special facility bond obligations are lease or debt financing
obligations and stopping payment on various unsecured debt obligations.
Prior to the Petition Date, a number of our facilities, improvements and, in certain cases, equipment were financed with the
proceeds of special facility bonds issued by various governmental entities. At December 31, 2005, there was a total of $1.8 billion in
principal amount of such special facility bonds outstanding. As discussed in Note 8 of the Notes to the Consolidated Financial
Statements, $397 million of such bonds are backed by GECC letters of credit, with our reimbursement obligations to GECC being
secured by certain of our aircraft and other assets.
Our liability with respect to certain of the special facility bonds outstanding at December 31, 2005 may constitute debt obligations
for bankruptcy purposes even if contained in an agreement that is labeled a "lease." Successful recharacterization of such obligations
as pre-petition debt obligations could enable us to curtail debt service payments with respect to such bonds while continuing to use the
facilities and making only true lease payments, such as ground rent to the relevant airport operator.
To date, we have filed one lease recharacterization action in Bankruptcy Court. The action relates to approximately $47 million
principal amount of special facility bonds issued by the Regional Airports Improvement Corporation to finance improvements to
certain Los Angeles International Airport terminal facilities occupied by us. The Bankruptcy Court has suspended action in this matter
pending a decision of the Seventh Circuit Court of Appeals on a similar case involving United Airlines.
Although we are committed to restructuring our real estate related obligations in a manner that provides us with appropriate
facilities at reasonable costs while substantially reducing our real estate related costs and
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