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The World's Largest Airline Reports Huge Loss

When Delta completed its merger with Northwest in October 2008, it jumped American and United to become the world's largest airline and, as such, the de facto proxy for the airline industry overall.

So today's announcement of Delta's financial results was keenly anticipated by industry-watchers not just for their own sake but also as a bellwether for the business in general.

Even with the intense scrutiny Delta has received, the airline managed to dramatically underperform the expectations of industry analysts, reporting losses that took the financial community by surprise.

During the final three months of 2008, Delta lost $1.4 billion. And for the full year, the airline lost $8.9 billion, compared to a profit of $1.6 billion in 2007.

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Delta took pains to point out that the fourth-quarter loss was partly due to so-called "exceptional items," in particular a $900 million charge related to employee equity awards triggered by the merger. But the full year results—representing a $10.5 billion swing into the red—have to give pause to investors and travelers alike.

What's ahead for Delta? The airline plans to reduce capacity by 6 to 8 percent in 2009. That's on top of an 11 percent cut in domestic capacity during the last six months of 2008. And, according to Richard Anderson, Delta's chief executive officer, the company expects to be "solidly profitable in 2009, driven by lower fuel costs, capacity discipline, and merger synergies."

The stock market did not endorse Anderson's rosy forecast: The price of Delta shares plummeted 18 percent after the losses were announced.

In Delta's own summary of its results, the final bullet point reads as follows: "As of December 31, 2008, Delta had $6.1 billion in total liquidity and cash collateral posted with hedge counterparties." That's meant to be reassuring. But if the airline's losses in 2009 approach last year's, that cash cushion could be depleted by 2010. In which case, we would find ourselves in a national debate about whether the world's largest airline is too large to fail.

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