Delta Bankruptcy Cascades onto Digitas

It’s “business as usual” for folks on the Delta Air Lines account at Digitas’ Modem Media, though the airline’s bankruptcy filing may bring the agency a write-off of up to $4 million in bad debt.

Delta, which filed for bankruptcy protection under Chapter 11 this week, is Digitas’ third-largest client, accounting for around five percent of the company’s fee revenue, or $13.6 million in the first half of 2005.

The airline plans to reorganize into a “simpler, more efficient and cost-effective” business. The company has obtained more than $2 billion in financing to pay debts to critical vendors during the restructuring period. In past airline restructuring cases, marketing continued to be a significant focus during the bankruptcy period.

A Digitas spokesman said it was “business as usual,” as the company will continue to service the account as it has in the past. Modem handles Delta’s interactive marketing efforts, including Delta.com and flysong.com, and its Delta SkyMiles affinity program.

Digitas will be paid for future work for Delta from the “debtor in possession” (DIP) financing Delta has arranged. The $3 to $4 million charge Digitas cites reflects its expectation of how much of the outstanding receivables it will be able to recover.

As a result, Digitas expects its earnings per share for the third quarter to drop by $0.04 to a range of $0.05 to $0.07, and the full-year EPS guidance will drop by $0.03 to the $0.40 to $0.43 range. The company’s guidance for revenue for the third quarter and full year will stay the same — $83 million to $85 million for the quarter, and $334 million to $340 million for the year.

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