Delta tapping $1B credit line to deal with merger

Delta Air Lines is borrowing $1 billion with an existing credit line to increase its cash balance as it nears the close of its acquisition of Northwest Airlines.

Atlanta-based Delta expects to close its deal with Eagan, Minn.-based Northwest by the end of the year.

Delta president and chief financial officer Ed Bastian said in a memo to employees that drawing down the full amount of the company’s $1 billion credit line “will provide us with the utmost in flexibility” as it prepares to close the merger. He said he believes the company has more than sufficient cash to manage the integration of the two airlines and run the business. Delta has estimated the integration will cost $600 million over three years.

“It’s not being done out of any financial duress or any operating needs for cash,” Bastian said in an interview Monday. “It is more of an offensive move to align our bank agreements with that of Northwest” as the companies enter discussions with bankers, he said, adding that he could not elaborate further.

Delta said it had $3.7 billion in liquidity at the end of July, including the $1 billion credit line, down from $4.3 billion at the end of June.

Delta took out a $1.5 billion loan when it exited from bankruptcy last year, along with the $1 billion credit line that it has pointed to as evidence of its liquidity.

Delta also said Monday it has amended its Visa/MasterCard credit processing agreement with U.S. Bank to run through 2011 with no cash holdback required. The agreement also covers Northwest after the close of the merger.