General Lee
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By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 04/19/05
Delta Air Lines' recent decision to outsource major aircraft overhauls complicates the struggling carrier's efforts to rebuild strained ties to employees as it continues to cut costs, CEO Gerald Grinstein says.
In a move that will eliminate hundreds of jobs, Delta recently announced it will outsource all major aircraft overhauls and shrink its Atlanta and Tampa hangars by early summer to cut maintenance costs by $240 million over five years.
EXCEPT FOR DISCOUNTERS, A BLEAK PICTURE Big airlines will post more big losses this week
Company / Reporting day/ Est. first-quarter profit (loss)
Continental Wednesday ($192 million)
American Wednesday ($303 million)
Delta Thursday ($657 million)
Northwest Thursday ($375 million)
JetBlue Thursday $2.1 million
Sources: Bloomberg News and Zacks Investment Research
The airline's decision to go outside its huge maintenance operation "is seen by a lot of people inside Delta as a total break from the past," said Grinstein, speaking Monday to the Southern Institute, a Decatur-based organization focused on business and professional ethics.
Until now, he said, Delta has contracted out a smaller share of maintenance work than other carriers.
"That is the kind of decision that has an effect on trust. ... People are going to say to themselves, 'If it happens there, am I next?' " said Grinstein. "Our job is to stabilize that feeling."
Grinstein, a longtime Delta director, said the carrier has improved employee and customer relations in a number of areas since he stepped in as chief executive 15 months ago. He said a move to cap and simplify fares has increased traffic. A shift to a more efficient schedule at Delta's Atlanta hub "has made us a far more reliable company," he said.
But whatever turnaround progress has been made won't be apparent in Delta's first-quarter earnings report, due Thursday.
Delta is expected to report a first-quarter loss of about $670 million, excluding one-time charges, among the worst results in the industry. Wall Street analysts expect airlines' first-quarter red ink to total billions, despite several fare increases in recent weeks to help offset high fuel costs.
Roger King, an analyst with CreditSights.com, said he thinks Delta could do slightly better than projections because of strong March traffic. But fuel still hobbles airlines, he added.
Crude oil prices have declined to about $50 a barrel — about 12 percent below record levels of two weeks ago. While the decline gives airlines some relief, jet fuel prices remain about 50 percent above year-ago levels.
Some industry analysts say crude oil needs to drop near $40 per barrel for Delta to avoid a cash crunch as early as this fall that could revive the possibility of a Chapter 11 filing. Such a filing would enable Delta to keep flying while it renegotiated debts under a judge's supervision.
Delta narrowly avoided a filing last fall with last-minute pay cut and vendor financing deals, but fuel has offset those gains.
"Our business plan was built on $40-to-$50 oil," said Grinstein. Delta's fuel bill is now expected to be $900 million to $1 billion higher than earlier projections. "Our challenge is to get more costs out to compensate for that. It is a huge threat to us."
Grinstein conceded there are still wounds among employees from disclosures two years ago that Delta gave bonuses and special pension funds to top executives.
"That broke the trust," said Grinstein, who last year took only half his $500,000 annual salary.
But Grinstein said Delta has to keep digging for deeper cost reductions because of unrelenting pressure from high fuel costs and low fares.
"We have to get our costs planing down, and we have a limited time to do that," Grinstein told the audience of about 80 business people at the Capital City Club.
Grinstein also said the extended bankruptcies of United and US Airways have allowed two prime competitors to avoid making payments on debt and other obligations.
He said the government should consider limiting the time a company can spend in bankruptcy.
"At some point there has to be a stop to it," Grinstein said.
Not good news. There will obviously be some more concession talk soon. I bet we will be "asked" to give another 10-15%, and the other employees also 10-15%. There may be some debt restructuring attempted, and the sale of DCI will be up there. That sounds about right.
Bye Bye--General Lee
The Atlanta Journal-Constitution
Published on: 04/19/05
Delta Air Lines' recent decision to outsource major aircraft overhauls complicates the struggling carrier's efforts to rebuild strained ties to employees as it continues to cut costs, CEO Gerald Grinstein says.
In a move that will eliminate hundreds of jobs, Delta recently announced it will outsource all major aircraft overhauls and shrink its Atlanta and Tampa hangars by early summer to cut maintenance costs by $240 million over five years.
EXCEPT FOR DISCOUNTERS, A BLEAK PICTURE Big airlines will post more big losses this week
Company / Reporting day/ Est. first-quarter profit (loss)
Continental Wednesday ($192 million)
American Wednesday ($303 million)
Delta Thursday ($657 million)
Northwest Thursday ($375 million)
JetBlue Thursday $2.1 million
Sources: Bloomberg News and Zacks Investment Research
The airline's decision to go outside its huge maintenance operation "is seen by a lot of people inside Delta as a total break from the past," said Grinstein, speaking Monday to the Southern Institute, a Decatur-based organization focused on business and professional ethics.
Until now, he said, Delta has contracted out a smaller share of maintenance work than other carriers.
"That is the kind of decision that has an effect on trust. ... People are going to say to themselves, 'If it happens there, am I next?' " said Grinstein. "Our job is to stabilize that feeling."
Grinstein, a longtime Delta director, said the carrier has improved employee and customer relations in a number of areas since he stepped in as chief executive 15 months ago. He said a move to cap and simplify fares has increased traffic. A shift to a more efficient schedule at Delta's Atlanta hub "has made us a far more reliable company," he said.
But whatever turnaround progress has been made won't be apparent in Delta's first-quarter earnings report, due Thursday.
Delta is expected to report a first-quarter loss of about $670 million, excluding one-time charges, among the worst results in the industry. Wall Street analysts expect airlines' first-quarter red ink to total billions, despite several fare increases in recent weeks to help offset high fuel costs.
Roger King, an analyst with CreditSights.com, said he thinks Delta could do slightly better than projections because of strong March traffic. But fuel still hobbles airlines, he added.
Crude oil prices have declined to about $50 a barrel — about 12 percent below record levels of two weeks ago. While the decline gives airlines some relief, jet fuel prices remain about 50 percent above year-ago levels.
Some industry analysts say crude oil needs to drop near $40 per barrel for Delta to avoid a cash crunch as early as this fall that could revive the possibility of a Chapter 11 filing. Such a filing would enable Delta to keep flying while it renegotiated debts under a judge's supervision.
Delta narrowly avoided a filing last fall with last-minute pay cut and vendor financing deals, but fuel has offset those gains.
"Our business plan was built on $40-to-$50 oil," said Grinstein. Delta's fuel bill is now expected to be $900 million to $1 billion higher than earlier projections. "Our challenge is to get more costs out to compensate for that. It is a huge threat to us."
Grinstein conceded there are still wounds among employees from disclosures two years ago that Delta gave bonuses and special pension funds to top executives.
"That broke the trust," said Grinstein, who last year took only half his $500,000 annual salary.
But Grinstein said Delta has to keep digging for deeper cost reductions because of unrelenting pressure from high fuel costs and low fares.
"We have to get our costs planing down, and we have a limited time to do that," Grinstein told the audience of about 80 business people at the Capital City Club.
Grinstein also said the extended bankruptcies of United and US Airways have allowed two prime competitors to avoid making payments on debt and other obligations.
He said the government should consider limiting the time a company can spend in bankruptcy.
"At some point there has to be a stop to it," Grinstein said.
Not good news. There will obviously be some more concession talk soon. I bet we will be "asked" to give another 10-15%, and the other employees also 10-15%. There may be some debt restructuring attempted, and the sale of DCI will be up there. That sounds about right.
Bye Bye--General Lee
