High fuel costs help Northwest, Delta lose $10.5B

— -- Merger partners Delta and Northwest airlines, whose proposed marriage would displace American as the world's largest carrier, on Wednesday reported staggering first-quarter losses totaling $10.5 billion.

Because Northwest shareholders would exchange their holdings for Delta shares — worth about $3 billion when the deal was announced — both companies were compelled by accounting rules to recognize impairments to the goodwill values placed on their balance sheets when they each emerged from Chapter 11 bankruptcy last year. Goodwill refers to the brand value of a company apart from the value of its hard assets.

Both airlines blamed the write-downs on fuel prices that have zoomed from about $70 a barrel when they emerged from Chapter 11 last year to $118.30 at Wednesday's close. They also blamed oil prices for their large first-quarter losses excluding one-time items.

Wall Street mostly ignored the non-cash write-downs and focused on their operating performance.

That also won little applause. Both carriers' shares fell Wednesday, but not as much as on Tuesday when all airline stocks dropped after May oil contracts traded at a record $119.90. Delta shares lost 3.5% of their value to close at $6.56. Northwest shares dropped 5% to close at $7.10.

Delta's first-quarter loss excluding one-time items was $274 million, or 69 cents a share.

Analysts had forecast a loss around 49 cents a share. The current No. 3 carrier in the USA said its first-quarter fuel bill rose $585 million from the same period in 2007.

Northwest's loss excluding one-time items was further off the mark: $191 million.

Analysts calculated the per-share loss on that basis at 71 to 78 cents, much higher than their average forecast of around 30 cents a share. Northwest spent $445 million more for fuel in the first quarter.

Including charges, Northwest lost $15.78 per share.

Executives at both carriers restated plans to reduce capacity.

Northwest expects global fourth-quarter capacity to be down 5% from last year, while Delta's domestic capacity in the fourth quarter will be down about 10%.

Both airlines will remove 15 to 20 planes from their fleets. Delta also plans to remove about 70 50-seat regional jets from the fleets of its regional airline affiliates.

Delta CEO Richard Anderson said in a conference call with analysts and reporters that Delta will work to remove all the operating costs associated with each plane going out of the fleet.

That implies another round of aggressive operational cost cutting that could include more job losses.