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Creditors from around the world will be scavenging for Delta Air Lines’ money this afternoon inside the Alexander Hamilton Custom House in New York. Pilots, both active and retired, want to convince U.S. Bankruptcy Judge Prudence Carter Beatty that Delta must continue to make payments to its pension plans, in spite of Delta’s operating under protection of Chapter 11 of the federal bankruptcy code. American Express wants Beatty to place it at or near the front of the line when it comes time for Delta to pay up. As Delta’s credit-card issuer, partner in its SkyMiles frequent-flyer program and recent lender of $300 million, American Express has hundreds of millions of dollars at stake in Beatty’s decisions. Airports across the country want to stop Delta from abandoning contracts to lease gates and trying to pay lower facility fees. Clayton County already has asked the judge to order the airline, the biggest payer of property taxes in the county, to pay its $18.3 million tax installment due next month. Countless banks want to make their presence known and cement their place in line, as they are owed money for the loans they floated for Delta’s airframes, engines, propellers and other airplane equipment. The so-called omnibus hearing, scheduled for 1:30 p.m. at the U.S. Bankruptcy Court for the Southern District of New York, will give pilots, American Express, airports and dozens of other groups a chance to argue their cases in front of Beatty. Delta, meanwhile, will argue against many of the creditors’ demands, saying they would jeopardize the airline management’s plan to cut $3 billion in costs by 2007 and emerge from Chapter 11 as a leaner, stronger company. “Delta must generate significant free cash flow to enable debt reduction and capital investment, create positive returns for shareholders, and ensure a stable and rewarding career opportunity for employees,” Delta Chief Financial Officer Edward H. Bastian said in a recent court filing. Beatty, who has sat on the bankruptcy bench since 1982, is expected to rule on few, if any, of the motions to be argued today. Also, many creditors who are scheduled to appear today could be pushed to a later date. Delta’s next hearing in Beatty’s courtroom is scheduled for Oct. 17. AIRPORTS AND GERMAN BANKS Like the airline’s routes, Delta’s creditors span the globe — airports in New York, Los Angeles, San Francisco, Florida and Denver; banks in Canada, Germany and the Netherlands; and financial companies such as Brandes Investment Partners and Wilmington Trust. All have filed motions to argue their cases on Thursday. “There are dozens of disputed issues that are on for the hearing,” said James H. Rollins, a partner with Holland & Knight in Atlanta who is representing one of Delta’s suppliers, Interface. The situation with Interface, a small company headquartered in Greer, S.C., indicates that Delta’s reorganization will reach far beyond its Fortune 500 creditors. Interface’s motion to the court shows that its owners are worried that Delta won’t live up to its contract to pay the company $1.5 million for storing and distributing aircraft paint, cleaners and other chemicals. Delta has postponed making a decision on whether it will honor the terms of its contract with Interface. That delay is hurting the company, because it must continue to provide Delta with services, although it isn’t getting paid, said Rollins, who represents Interface. “The delay on Delta’s part is seriously affecting Interface,” Rollins said. “The unpaid balance is making it very difficult for Interface to continue to operate.” Delta, by its own admission, isn’t that sympathetic to Interface’s pleadings, as Interface is one of thousands of companies that hold contracts with the airline. “Delta is simply not in a position to expedite review of every executory contract,” according to a Delta court filing submitted by attorney James I. McClammy of Davis Polk & Wardwell. “Delta must be provided the breathing space contemplated by the Bankruptcy Code so that it can focus its attention on its reorganization efforts.” One of the most hotly contested arguments today will be a request by a group of retired pilots that Delta make a payment of about $31 million to its qualified retirement plans, which include pensions, and resume making regular payments to its unqualified retirement plans, such as 401(k) plans. John A. Christy, an attorney at Schreeder, Wheeler & Flint who represents about 1,800 retired pilots, argued in a court filing that Delta’s move to shift its pension payments to the lower-paying, federal Pension Benefit Guaranty Corp. this early in Chapter 11 proceedings without consulting the retirees is a violation of federal law. “Only Delta has taken the unprecedented aggressive and extreme position on the first day of its bankruptcy filing not to pay them,” according to a filing submitted by Christy, Dean Booth and Jason W. Graham, also of Schreeder, Wheeler & Flint. Delta argued in a later court filing that it simply is doing what other airlines have done when operating under Chapter 11 protection. “Every one of the major legacy carriers in Chapter 11 (United Airlines, US Airways and Northwest Airlines) has, under well-established law, halted payment of some or all of the … pension obligations that [the retired pilots] wrongfully seek to compel Delta to pay,” Delta said in its filing. The union that represents active pilots and the federal pension-insurance agency both filed motions supporting the retired pilots. “If [Delta's] contributions are not made, workers and retirees will be placed at greater risk of losing promised benefits,” said Bradley Belt, director of the Pension Benefit Guaranty Corp. “Nothing in the bankruptcy code requires companies to skip their pension funding payments.” Delta has lapsed on payments to its pension plans to the tune of about $10.6 billion, according to a Pension Benefit Guaranty estimate. Delta is lobbying Congress to approve a law that would allow it to lower its payments into the pension plans for the next 25 years. CLAYTON COUNTY OWED $18.3M Not all of Delta’s creditors have asked to appear in Beatty’s courtroom on Thursday. On Tuesday, Clayton County filed a motion asking Beatty to ensure that Delta makes its property tax payment of $18.3 million on Nov. 15. The biggest payer of property taxes in Clayton, Delta’s corporate offices are located there and most of Hartsfield-Jackson Atlanta International Airport is in Clayton. County officials are worried that Delta will try to forgo its yearly ad valorem taxes, as has happened with other airlines operating under bankruptcy protection, said Gus H. Small Jr., an attorney representing Clayton. “We’re very hopeful that Delta is going to pay,” said Small of Cohen Pollock Merlin Axelrod & Small. One group of banks from Canada, Germany and the Netherlands jointly filed a motion to oppose Delta’s plan for abandoning some of the airplanes and equipment it leases. Rather than give the banks a list of the airplanes and parts and where they are located, the banks want Delta to deliver the equipment to them immediately, even if another airline is using the engines or parts, and even if the equipment is scattered across the continent. “[The] engines are not located on the originally installed airframe, but are located on other airframes. Most of the engines are located on airframes belonging to different entities. Some of the engines are not even located on an airframe,” the banks’ filing said. “Delta’s desire to give [us] a map setting forth the assorted locations and condition of the Equipment does not satisfy the ‘immediately surrender and return to’ requirements” of the law, the filing said. “Contrary to [Delta's] wishes, this is not a treasure hunt, but a statutory requirement that protects the substantial interests of the aircraft financiers.” The banks, which include Bankgesellschaft Berlin AG and Norddeutsche Landesbank Girozentrale, told the judge that they even expect Delta to install the engines on their original planes, if necessary.

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