Financial Times August 9 2004 Delta on Monday added to fears that without cost reductions it could be forced to file for bankruptcy later this year after it warned it expected to use up far more of its cash reserves in the second half than it had forecast six months ago. In December, Delta said it expected that its annual cash flows from operations would be sufficient to fund its daily operations and its non-fleet capital expenditures in 2004. However, the first-half drop in domestic passenger yields and soaring fuel prices, which drove up its annual fuel costs by $680m from a year ago, have lead it to warn that its actual cash flows would fall below expectations. "We plan to use a portion of our cash reserves to pay certain obligations that we previously anticipated would be paid from cash flows from operations," Delta explained. "Accordingly, we expect our cash and cash equivalents to decline during the remainder of 2004 at a level consistent with the decline during the first half of the year." Delta's cash balances fell from $2.7bn at the end of December to $2bn at the end of June. If it does use up a further $700m in cash in the second half, that could trigger a liquidity crisis as Delta has few unencumbered assets it could use to raise financing. "Except for our existing commitments to finance our purchase of regional jet aircraft, we have no available lines of credit," it said. The airline has demanded a minimum of $1bn in cost concessions from its pilots, but the talks have become increasingly hostile. Last week John Malone, head of Delta's Air Line Pilots Association, called the demands excessive, and offered $655m to $705m in concessions in return for an equity stake in the airline. In its first quarter filing with the Securities and Exchange Commission, Delta said: "If we cannot make substantial progress in the near term toward achieving a competitive cost structure that will permit us to regain sustained profitability and access the capital markets on acceptable terms, we will need to seek to restructure our costs under Chapter 11." Delta, like American Airlines a year ago, is seeking to use the threat of bankruptcy to secure concessions from all its stakeholders. Mark Streeter, credit analyst at JP Morgan, said: "The biggest wild card is not if and when the pilots come to the table ready to deal but rather how Delta will approach creditors ... the Delta 'game of chicken' hinges on creditors, not labour." Mr Streeter estimated that Delta had $20bn in debt, including $4.7bn in unsecured bonds and $8bn to $9bn in aircraft leases.