MIAMI - Delta Air Lines' year-end 2004 financial statements paint a picture of a company for whom the bell tolls. The balance sheet shows a company with $21.8 billion in assets and $27.6 billion in debts. Put another way, it has a negative net worth of $5.8 billion, which means that in bankruptcy, shareholders and a lot of creditor claims will be wiped out. Since the company says it has insufficient cash to survive the year, a bankruptcy filing this year would seem inevitable.

  What is different here from the other distressed airlines is that Delta Air Lines (nyse: DAL - news - people ) talked this doom and gloom last year in order to get its unions to go along with wage cuts and other downsizing moves. That battle was won, so further union concessions are unlikely. The fact that Delta is still on this negative forecast probably means that it has run out of rocks to squeeze.

It is clear that the airline industry needs a structural solution, and that solution is mergers to reduce competition and drive up prices. Peter Drucker, the famous management professor, noted that all industries have to deal with up to three significant vulnerabilities. They are either capital intensive (vulnerable to interest rates, declining credit ratings), labor intensive (vulnerable to unionization, wage inflation and strikes) or highly dependent on the price of a raw material (in Delta's case, fuel). What makes airlines so vulnerable is that they are one of the few industries that have all three vulnerabilities. While Delta can deal with its workforce and arm-twist its creditors, it now faces ruinous fuel prices over which it has no leverage.
 

As for market perceptions of the Delta situation, one can only wonder. The common stock is currently trading at $4.20, although it is technically worthless. The company has three trust preferred issues that are actually bonds. Lehman Brothers (nyse: LEH - news - people ) issued the Delta Air Lines 9% Corporate Backed Trust Certificates (nyse: CDC - news - people ) and another Delta Air Lines 9% issue (nyse: CYA - news - people ), trading at $8.30 and $8.20, respectively. Meanwhile, a third issue, Delta Air Lines 8.125% Senior Notes (nyse: DNT - news - people ), which was created by Delta, is trading at $7.90. The DNT issue just paid a quarterly dividend, while the other two pay every six months.

Should Delta file bankruptcy, the CDC and CYA issues are lower-rated junior debt and would immediately be called for whatever the underlying bonds can be sold for. This is true for all third-party trust preferreds. If a company files for bankruptcy, the trustee is forced to liquidate the underlying bonds within 30 days. The period immediately after a company files bankruptcy is usually a low point in the price of its debt issues, hardly the point you want to be sold out.

London apartment: London vacation apartment provides accommodations for rentals during vacations. Vacations in London: stay at our London apartment. Rentals that make a great London apartment vacation