Delta up as oil, pension plan go down; auto names get boost from Ford news

By Paul Deckelman

New York, Sept. 5 - Delta Air Lines Inc.'s bonds were seen firmer in Tuesday trading, coinciding with continually falling oil prices and a favorable court ruling in its efforts to get out from under its pilots' pension plan - a key step in the Atlanta-based Number Three U.S. carrier's efforts to escape from bankruptcy proceedings.

Auto-sector names were higher, given a boost by strength in Ford Motor Co.'s bonds after the beleaguered Number-Two American carmaker surprised Wall Street with the announcement that chairman William Clay Ford Jr. - great grandson of Henry Ford - will step down as chief executive, handing the keys to the company to former Boeing Co. executive Alan Mulally.

Metaldyne Corp.'s 11% senior subordinated notes due 2012 meantime were seen up 2 or 3 points from the levels to which they had fallen Friday following the official announcement that the company is to be bought and those bonds tendered for - but at sharply lower levels.

Delta gains altitude

A trader saw Delta's 8.30% notes due 2029 gaining a point to 25.5 bid, 26.5 offered, while the company's other bonds, like its 7.90% notes due 2009, trade a point behind those levels.

Delta-watchers noted that the beleaguered airline - which was forced to crash land in the bankruptcy courts last fall after years of big losses - got the green light to terminate its pilots' pension plan.

Even with judge Adlai Hardin's decision, Delta must still go to the federal government's pension agency, the Pension Benefit Guaranty Corp., to officially end the plan. At that time, the PBGC will take over the plan and pay pilots reduced benefits. The change would be retroactive to Sept. 2.

Delta has said that it must be able to terminate the plan for its more than 5,000 captains - formerly the best paid in the industry - if it is to get its finances under control and emerge from bankruptcy.

Besides heavy pension and labor costs, rising fuel costs all of last year and into much of this year have been playing havoc with the finances of airlines such as Delta and main competitor Northwest Airlines Corp., which filed for bankrupt protection before the same court - the Southern District of New York - on the same day last fall.

But jet fuel prices may start coming down, as world crude oil prices - seen by some as an indicator of the future direction of prices for jet fuel and other distillates - continue to fall from their recent peak levels on an easing of supply concerns.

Light, sweet crude for October fell 58 cents Tuesday to settle at $68.60 a barrel on the New York Mercantile Exchange - the lowest settlement price since finishing at $68.56 on June 13. Crude was recently trading as high as $78 per barrel.

Asbestos names better

Elsewhere, a trader in distressed bonds was quoting bankrupt Toledo, Ohio-based insulation maker Owens Corning's 7½% notes due 2018 at 57.5 bid, 59.5 offered, up 1½ points.

He also saw Armstrong World Industries Inc. at 66 bid, 68 offered, up a point. However, he saw no news out on either of the asbestos-challenged companies.

Ford CEO steps down

The big news of the day, a trader said, was Ford's afternoon announcement that its namesake chairman and CEO, Bill Ford, will relinquish the latter post after five years of fighting a losing battle trying to stabilize the Number-Two American carmaker's operations and finances.

Ford "popped up here," a trader said. "It was the big mover."

He quoted the company's flagship 7.45% notes due 2031 as having moved up a point or more after the news of the CEO shakeup hit the tape late in the session, to end around 80 bid, 80.75 offered. If the bonds were trading around 80.25, he said, "that would be about a 2 point gain" from the levels they held late last week. Comparisons are difficult due to the thinness of real trading in Friday's abbreviated pre-holiday break and the closure of U.S. debt markets on Monday.

The trader also saw the company's Ford Motor Credit Co. financial arm's 7% notes due 2013 up 1¼ points on the session at 94 bid, 94.75 offered.

The news that the great-grandson of company founder would relinquish day-to-day control of the company after five years at the helm - although he will stay on as chairman - followed a week in which all kinds of other scenarios about Ford's future were being bandied about. These included news reports and market rumors that it might sell a substantial stake in its valuable and profitable Ford Credit business, might sell its prestigious but money-losing Jaguar operations, might partner up with foreign rivals the way chief competitor General Motors Corp. is trying to do, or that the Ford family - which controls a commanding 40% of the company's voting power - might decide to take Ford private, giving the top leadership greater flexibility to solve the company's problems without having to answer to public stockholders. Bill Ford's announcement was unexpected by most in the marketplace.

Perhaps just as surprising as the fact of the Ford heir's resignation from the day-to-day running of the company is the identity of his replacement: Alan Mulally, a man of extensive industrial corporate experience - but no direct background in the automotive industry, which usually develops its senior management cadre from within. He comes to Ford after nearly 40 years with aerospace giant Boeing, and is widely credited with directing the resurgence in the latter company's commercial plane division after the sharp decline that followed the 9/11 attacks.

While analysts called Ford's action of going outside the relatively insular automotive industry to pick a CEO a radical step, the move was seen as an admission by Ford of the need for bold action to keep the struggling company's situation from deteriorating much further and turning its fortunes around.

They noted that in helping Boeing bounce back from the downturn that hit the airline industry - and supplier companies like Boeing - in the aftermath of 9/11, Mulally faced challenges not unlike those confronting the venerable U.S. auto industry, such as the loss of market share to aggressive foreign rivals like Airbus, the difficulties of dealing with established industrial unions, and the need for new and innovative products. In the latter case, he was project manager for Boeing's successful 777 jetliner and oversaw development of its ground-breaking 787 model. He also overhauled Boeing's manufacturing process - ironically using auto factories' production lines as his model.

GM, auto suppliers better

News that a new man will be in the drivers' seat at Ford was cited by traders as an energizing development that helped the auto names pretty much across the board.

General Motors' benchmark 8 3/8% notes due 2033 were seen up 2 points on the day, a trader said, at 85.5 bid, while its General Motors Acceptance Corp. financing arm's 8% notes due 2031 were up a point at 101.25 bid, 102.25 offered.

Among the supplier names, a trader said "the parts makers were stronger."

He cited such names as Cooper Tire and ArvinMeritor Inc. The latter's 8¾% notes due 2012 were a point better at 98.75 bid, 99.75 offered. He also saw Goodyear Tire & Rubber Co.'s 9% notes due 2015 up ½ to ¾ point at 100.25 bid,, 101.25 offered, citing the fall in the prices of petroleum and other chemical feedstock commodities in recent days.

A trader saw bankrupt Novi, Mich.-based Tower Automotive's 12% notes due 2013 a point better at 38 bid, 40 offered. And Collins & Aikman Corp.'s 10¾% notes due 2011 moved up to 6.5 bid, 7.5 offered from prior levels around 5 bid, 7 offered.

Metaldyne moves back up

A trader quoted Metaldyne's 11% notes as having moved back up on Monday to levels around 93.5 bid, 94.5 offered, which he called a 3½ to 4 point gain over the levels to which the bonds fell in abbreviated but still busy dealings on Friday.

And trading levels were just as intense Tuesday, with a source seeing the bonds actively trading around at prices ranging from 90 to 96, before settling in around the 93.25 level.

Metaldyne's junior bonds have been bouncing crazily around for several days, rocketing up into the mid-90s last week from prior levels in the upper 70s on speculation - which later turned out to be true - that the Plymouth, Mich. parts maker would be bought by Asahi Tec Corp. in a $1.2 billion deal.

Bondholder assumptions seemed to be that the deal would trigger change-of-control covenants, forcing the company to offer to let the bondholders put those bonds back to it at 101. But the bonds fell back into the upper 80s to around 90 on Friday on the official announcement of the deal - which included a company statement that the 11% notes and its 10% subs due 2014 would be tendered for at a level reflecting their "preannouncement" trading range - in the upper 70s.

Traders said they saw no fresh news out that would explain the rebound back into the mid-90s.

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