GogglesPisano
Pawn, in game of life
- Joined
- Oct 20, 2003
- Posts
- 3,939
What do you guys think of this?
Comair's fate up in air
Experts: Spinoff from Delta still possible
By Lucy May
Cincinnati Business Courier
Updated: 8:00 p.m. ET Sept. 19, 2004
For months, analysts speculated that Delta Air Lines might spin off its wholly owned subsidiaries -- locally based Comair Inc. and Atlantic Southeast Airlines -- to infuse cash into the ailing carrier.
While such a spinoff was not part of the recovery strategy Delta announced Sept. 8, industry observers and insiders say Comair and ASA are still very much in play.
In fact, many expect Delta will spin off the regional carriers as part of CEO Gerald Grinstein's efforts to save the airline.
"Grinstein's mandate was to look at things objectively. He was tasked to retool the company, and nothing is sacrosanct," said Doug Abbey, a partner in the Velocity Group, an airline consultancy in Washington, D.C. "A spinoff is conceivable in the next year or so, or even as soon as the next six months."
It's unclear how such a spinoff would impact Comair, which employs about 4,000 in Greater Cincinnati. By all accounts, the regional carrier has been critical in stabilizing Delta since the terror attacks of 2001. Comair flights represent most of Delta's traffic at the Cincinnati/Northern Kentucky International Airport, where Delta and its affiliates control more than 90 percent of all flights.
But Comair's growth has slowed in recent years. An 89-day pilots strike in early 2001 resulted in a contract that made Comair's pilots the best paid in the regional airline industry. And Comair President Randy Rademacher has told employees repeatedly that Comair's high costs make it difficult for the airline to compete.
"Even within the Delta family, there's competition for the flying," said Deborah McElroy, president of the Regional Airline Association based in Washington, D.C. "It doesn't matter whether you're owned or not, there's no entitlement to fly anymore."
David Beckerman, director of consulting services for BACK Aviation Solutions in Washington, D.C., noted that just last year Delta asked all its regional partners to submit bids for new routes. Those bids led the airline to send more business to Chautauqua Airlines, not Comair.
"Delta probably learned a lot about how various carriers compare," Beckerman said.
These days, airlines can get the connecting service they need and the control they want by contracting with regional airlines instead of owning them, he added.
Industry insiders say even if Comair were spun off as an independent airline, it would be difficult for the regional carrier to compete with its current cost structure.
Comair management approached the pilots union last October about reopening the five-year contract and lowering costs within the month to try to win more Delta business. Union leaders rejected the request, saying the airline hadn't given them enough time to study the matter thoroughly.
Comair spokesman Nick Miller declined to comment on any speculation about a possible spinoff or on Comair's financial health except to say Comair knows "that Delta is working very hard to lower its cost structure, and we're going to have to be ready to respond to that.
"We may be owned by Delta, but the fact is, we're a supplier," Miller said. "We provide connecting feed, and we compete with other airlines for that opportunity."
In a memo to employees dated Sept. 8 -- the day Grinstein announced Delta's network changes -- Comair's Rademacher wrote that the day's developments showed "the uncertainty and drastic impact restructuring efforts can have on major airlines and regional partners."
"Our best chance to control our own fate during transformation means having the foresight and will to make decisions that ensure we have competitive costs in every area of the company," he wrote.
Much of Delta's future, and that of Comair, rests with whether Grinstein and his management team can avoid a Chapter 11 bankruptcy filing. If Delta does file for Chapter 11, which Grinstein has said could be just weeks away, it's unclear whether Comair and ASA would be part of the filing.
Delta acquired Comair in 2000 for $1.8 billion. Comair's stock had eight 3-for-2 splits since going public in 1981, and the regional airline was known for profit margins more than double the industry standard of 10 percent. Word in the industry was that Delta wanted a bigger share of those profits.
But the changing industry has led other major airlines to sell off regional carriers.
Northwest Airlines raised $255 million last November selling nearly 89 percent of its regional carrier, Pinnacle, in a public stock offering. And Continental Airlines raised $300 million in 2002 with an IPO that left it with a 53 percent interest in ExpressJet. Continental has since sold off more stock in the carrier.
Comair has maintained some independence since being acquired by Delta. The airline has always kept a separate flight certificate and has its own uniforms, flight and maintenance operations, which helps fuel speculation about a spinoff.
But the airline will have to find a way to work through its high costs, whether it's owned by Delta or not, the association's McElroy said.
"It's critically important for the regionals to remain the low-cost producer in order to be valuable to the majors," she said.
© 2004 Cincinnati Business Courier
Comair's fate up in air
Experts: Spinoff from Delta still possible
By Lucy May
Cincinnati Business Courier
Updated: 8:00 p.m. ET Sept. 19, 2004
For months, analysts speculated that Delta Air Lines might spin off its wholly owned subsidiaries -- locally based Comair Inc. and Atlantic Southeast Airlines -- to infuse cash into the ailing carrier.
While such a spinoff was not part of the recovery strategy Delta announced Sept. 8, industry observers and insiders say Comair and ASA are still very much in play.
In fact, many expect Delta will spin off the regional carriers as part of CEO Gerald Grinstein's efforts to save the airline.
"Grinstein's mandate was to look at things objectively. He was tasked to retool the company, and nothing is sacrosanct," said Doug Abbey, a partner in the Velocity Group, an airline consultancy in Washington, D.C. "A spinoff is conceivable in the next year or so, or even as soon as the next six months."
It's unclear how such a spinoff would impact Comair, which employs about 4,000 in Greater Cincinnati. By all accounts, the regional carrier has been critical in stabilizing Delta since the terror attacks of 2001. Comair flights represent most of Delta's traffic at the Cincinnati/Northern Kentucky International Airport, where Delta and its affiliates control more than 90 percent of all flights.
But Comair's growth has slowed in recent years. An 89-day pilots strike in early 2001 resulted in a contract that made Comair's pilots the best paid in the regional airline industry. And Comair President Randy Rademacher has told employees repeatedly that Comair's high costs make it difficult for the airline to compete.
"Even within the Delta family, there's competition for the flying," said Deborah McElroy, president of the Regional Airline Association based in Washington, D.C. "It doesn't matter whether you're owned or not, there's no entitlement to fly anymore."
David Beckerman, director of consulting services for BACK Aviation Solutions in Washington, D.C., noted that just last year Delta asked all its regional partners to submit bids for new routes. Those bids led the airline to send more business to Chautauqua Airlines, not Comair.
"Delta probably learned a lot about how various carriers compare," Beckerman said.
These days, airlines can get the connecting service they need and the control they want by contracting with regional airlines instead of owning them, he added.
Industry insiders say even if Comair were spun off as an independent airline, it would be difficult for the regional carrier to compete with its current cost structure.
Comair management approached the pilots union last October about reopening the five-year contract and lowering costs within the month to try to win more Delta business. Union leaders rejected the request, saying the airline hadn't given them enough time to study the matter thoroughly.
Comair spokesman Nick Miller declined to comment on any speculation about a possible spinoff or on Comair's financial health except to say Comair knows "that Delta is working very hard to lower its cost structure, and we're going to have to be ready to respond to that.
"We may be owned by Delta, but the fact is, we're a supplier," Miller said. "We provide connecting feed, and we compete with other airlines for that opportunity."
In a memo to employees dated Sept. 8 -- the day Grinstein announced Delta's network changes -- Comair's Rademacher wrote that the day's developments showed "the uncertainty and drastic impact restructuring efforts can have on major airlines and regional partners."
"Our best chance to control our own fate during transformation means having the foresight and will to make decisions that ensure we have competitive costs in every area of the company," he wrote.
Much of Delta's future, and that of Comair, rests with whether Grinstein and his management team can avoid a Chapter 11 bankruptcy filing. If Delta does file for Chapter 11, which Grinstein has said could be just weeks away, it's unclear whether Comair and ASA would be part of the filing.
Delta acquired Comair in 2000 for $1.8 billion. Comair's stock had eight 3-for-2 splits since going public in 1981, and the regional airline was known for profit margins more than double the industry standard of 10 percent. Word in the industry was that Delta wanted a bigger share of those profits.
But the changing industry has led other major airlines to sell off regional carriers.
Northwest Airlines raised $255 million last November selling nearly 89 percent of its regional carrier, Pinnacle, in a public stock offering. And Continental Airlines raised $300 million in 2002 with an IPO that left it with a 53 percent interest in ExpressJet. Continental has since sold off more stock in the carrier.
Comair has maintained some independence since being acquired by Delta. The airline has always kept a separate flight certificate and has its own uniforms, flight and maintenance operations, which helps fuel speculation about a spinoff.
But the airline will have to find a way to work through its high costs, whether it's owned by Delta or not, the association's McElroy said.
"It's critically important for the regionals to remain the low-cost producer in order to be valuable to the majors," she said.
© 2004 Cincinnati Business Courier
