DAL and ATA face liquidity crisis

[storminpilot]

http://news.ft.com/cms/s/131e7658-2078-11d9-af19-00000e2511c8.html

Two US airlines face liquidity crisis

By Caroline Daniel in Chicago-Financial Times
Published: October 17 2004 21:07 | Last updated: October 17 2004 21:07

The shake-out in the US airline industry caused by high fuel prices and weak revenues is set to continue this week. Delta is seeking further concessions from its creditors and pilots to ward off bankruptcy, and ATA, the 10th-largest US airline, faces an imminent bankruptcy risk.

On Friday, Delta warned that its losses in the third quarter, typically one of its strongest, would be far higher than analysts' estimates. On Wednesday it expects to report a net loss of $625m-$675m. Moreover, its unrestricted cash levels have slumped to $1.45bn from $2bn at the end of June, a psychological level that most analysts see as the minimum to successfully finance a bankruptcy restructuring.

Analysts said bankruptcy was inevitable for the carrier, not least because it warned it would need up to $1.4bn in additional financing next year.

A capital raising is seen as impossible from the capital markets in this environment.

Jamie Baker, analyst at JPMorgan, also expressed surprise at Delta's revelation that it was only seeking $125m in annual savings from its debt discussions, far lower than the $700m he had been expecting, and lower than American obtained in its out-of-court restruc-turing.

ATA, which has warned since August of a liquidity crisis, is also understood to face a payment on Wednesday to Boeing, which could act as the trigger for a bankruptcy filing to conserve cash.

Delta and ATA's efforts to stave off bankruptcy come as United and US Airways have been forced by soaring fuel prices to more aggressively exploit some of the legal tools available in bankruptcy, in particularly section 1113, which enables them to impose labour cuts and amend collective bargaining agreements.

US Airways on Friday gained approval from the bankruptcy court to impose immediate 21 per cent pay cuts on its workers, slightly lower than the 23 per cent cut it had requested.

United Airlines also warned in a filing with the bankruptcy court that, given the urgency of its situation and the stark financial reality in the entire industry, it would most likely have no choice but to seek further non-pension labour-related savings. It said it would start another 1113 bargaining process in early November, and wanted to achieve cuts by mid-January.

If it cannot get the cuts consensually it will seek to impose them. It also warned again that it expected to have to terminate its pension plans.

 

[General Lee]

Thanks Storminpilot. Yes, times are bad at DL, but I wouldn't be surprised to see a TA with the pilots soon, and that may or may not help immediately, but will be done probably before any proceedings. There is a looming debt problem, and it may be possible to restructure the debt into payments in the future, like 2008, and give the debt holders stock in return. We all don't really know what is going on in the boardroom, but cash supply is obviously tight.



Bye Bye--General Lee

 

[Rhoid]

So, according to the above article Delta is in danger of going chapter 7 liquidation?

 

[satpak77]

no Ch.7

Ch.7 is outright ceased operation, sell the planes, gotta pay the light bills

Ch.11 is what DAL is facing now

 

[blzr]

The Sky is falling, the sky is falling.

I really thing there are a couple of other airlines that are WAY closer to Ch7 than DAL and ATA.

The next couple of weeks are going to be a rough ride until after the election anyway. Hang in there guys.

 

[General Lee]

Well, things aren't great to say the least, but as I remember, AA got down to $1 billion in cash and still pulled it out of the dive. We also own ASA/Comair that we could sell if needed to raise some cash. The key here is that we (the pilots) will be giving $1 billion or so a year, and the non-union people will also be giving around $850 million a year, and we are closing money losing DFW. Grinstein is trying to convince the creditors to restructure our debt---and now is giving them an option to include some stock---which could go up like AA's after a deal is made. (AA's stock went up 1100%----yes, 1100% from $1 to $11 in a couple months) But, it may not be enough with the high fuel costs, and it will be interesting to see how it all pans out.


Rhoid,

No, Chap 7 is not very close, but a Chap 11 may be. In Chap 11 the company can erase all of the unsecured debt owed and renegotiate contracts with employees, vendors, lenders, etc. The problem which results is bad credit for awhile, but Continental and America West have both gone Chap 11 twice, and things have turned out ok for them so far.....


Bye Bye--General Lee

 

[G4G5]

Hi General,

Any word on the concessions associated with the pay cut? Folks over on the APA web site claim to "know" somethings. Preferential bidding was one thing, that will no doubt lead to a 10% reduction in required staffing. The next thing would be the increase ability to fly more hours. Numbers like UALs current 95 hrs are being bantered around. This no doubt will allow for additional furloughs. I really feel for the guys who just got called back.

While I understand the current exodus of the sr folks will leave some empty seats but those seats in no way will equal the reduction created by preff bidding and an increase in work rules.

Good luck.

 

[General Lee]

G4G5,

How do you know that? Have you called our Crew Resources people? You have? They stated that we are so short that we could raise the cap to 83 hours(from the current 75) and still have the recall. That is before we lose another 500-700 Captains. And, you know of course how losing a senior Captain has the domino effect on people upgrading--right? You knew that...
Losing more than 1000 senior Captains won't have an effect on manning and will require a lot more furloughs?.......ok....

You are wrong on a couple counts. First, we are currently SHORT in almost every category, since we have lost 600 Captains since June.(United has lost 124 Captains this year) We are forcast to lose another 500-700 by Feb 1st, since the company allowed the lump sum portion of the pensions to be guaranteed until Feb 1st---and after that---the lump sum portion may be in jeopardy.(They guaranteed it even if a Chap 11 occurs in the mean time---which essentially FORCES most of the 25 year pilots OUT) This was all solved with a TA we just passed two weeks ago, which allows some (not all--a lottery type system was set up--thanks to the IRS) of the Captains to remain until Dec 31st of 2005---or until their replacement is trained.(they have to be GONE by December 31st, 2005)

The second point is that we are going to a "depeaked hub system" at ATL , which is adding 60 mainline flights a day there. That, combined with the addition of flights at CVG and SLC, and including the downsizing at DFW, will increase our normal fleet by 44 aircraft (thanks to quicker turn times of our own current aircraft fleet). So, we will have to keep our current pilots and probably continue recalling our furloughs---even if our cap is raised---which is rumored to be 83 hours from the current 75. (not 95 like United) With 60 new flights a day at ATL, more reserves will be needed also. We have also added quite a few new INTL routes, (Berlin, an extra flight to Bombay--making two daily, etc) requiring more pilots.

I am not saying that we will not furlough again, but with our new "plan"---it is an expansion plan, and with new pay scales and new efficiencies from everyone (including ground people--rampers etc)----our operation will become leaner. There is a good chance that if everything goes as planned (which might not happen)---there could be some real expansion in 2006 according to some management types---after all of the savings are realized.
Nobody knows what will happen if we go Chap 11, but we all know this---there will be a MASS EXODUS of guys trying to protect their hard earned pension (50% anyway).( as of September 1st---we had 1271 guys eligible (age 50 or higher) that could take their lump sums---and 99 left Sep 1st with 71 being early retirements) Sounds like a possible huge exodus to me, and the TA is in place to keep the planes flying.


Bye Bye--General Lee

 

[46Driver]

I keep hearing that the age of the RJ has passed, if so, who would want to buy ASA or Comair?

 

[General Lee]

That may be true, but for someone it may be an investment--as long as Delta has a contract with them. I think the days of 50 seat RJs may be coming to an end, but not 70 seaters. There are certain routes that can only support a 50 seater---and those are certainly on routes that are not competing directly with LCC mainline planes..... But that is for another thread.....


Bye Bye--General Lee

 

[46Driver]

Just curious, if somebody bought ASA or Comair would they have to fly for Delta exclusively or could they shop around? If it was for Delta exclusively, I can't see anybody buying them else they will get BAIN'ed just like UAL did to their regional providers.

 

[General Lee]

46driver,


You bring up interesting questions that unfortunately I have no answers for. All I know is that we bought ASA and Comair for about $1.8 billion dollars, and that we currently have between $7.5--9.0 billion worth of debt for 372 RJs. There are probably companies out there that would like to have an airline that works like Expressjet---which is profitable, even with it's own debt. I don't really know if ASA or Comair is for sale, but that would be brought up by creditors in a Chap 11 senario I am sure. Whether or not they would sell them off is up to them, not me. Could they fly for other airlines at the same time if they were sold to someone? Maybe......? I honestly don't know.


Bye Bye--General Lee

 

[46Driver]

Best of Luck. Growing up in the South, Delta was always the hometown airline.

 

[dtfl]

we bought ASA and Comair for about $1.8 billion dollars, and that we currently have between $7.5--9.0 billion worth of debt for 372 RJs

Huh. Why is it I see some regional jet folks all over mainline guys for this J4J deal (possibility) when we are buying their **CENSORED****CENSORED****CENSORED****CENSORED** airplanes?
Kinda like saying..."hell no you can't ride in this car you bought and own.."
Not ALL regional guys..just a few - to save the flames.

PS after a 2.0 hour flight on a CRJ I have determined I really do hate them. GG has a point about flights being less then 2 hours..I say less than 1.5. It was the most uncomfortable flight I have ever been on. Add it wasn't just me -other folks were unhappy about a 2 hour flight...the entire US isn't full of SWA lovers. Some folks would pay a few bucks more for some room - at least these folks would have. I had no choice as the military booked it and all flights were full other than that. Wonder how much leg room the EMB 190 has? I saw it when I was at Farnborough this year - but they only let potential "buyers" into it. Now...the EMB I likey. More room- and I always book the A seat.

 

[Pez D. Spencer]

Just a question for you General, If Delta has "between $7.5--9.0 billion worth of debt for 372 RJs," where are the rest of them (which you attributed to Comair and ASA)?

Comair has 162, and ASA with the 25 orders will have close to that, if not a couple more. Needless to say, that doesn't add up to 372. So, where are the other 50 or so?

 

[Pez D. Spencer]

dtfl,
We pay Delta for the leases on our airplanes, so give it rest bud.

 

[dtfl]

OK....now I know..."BUD"
You must be part of the regional jets wives club too from that tone.
There is more hate on this board than I have ever seen. 90% form regional guys who HATE mainline..who HATE the military guys...who hate everything.

I guess this profession is just populated with asses. All of us included.

PS dont worry about me taking your seat at a regional either. Before I took a J4J I would fly with the reserves and serve my country. (And make more $)

 

[Pez D. Spencer]

dtfl, bud,
Good for you. Thanks for serving our country. And, I really don't care that your reply was as obnoxious as your original post. My sim partner at my regional was a military pilot -- we're great friends -- sorry, don't mean to burst your "anti-regional" bubble, but we have quite a lot of military folk currently active and recently returned. My roomate is military. We respect them all. I'm not worried about you or the General "taking my seat." It's not your's to take. I was just pointing out something you obviuosly did not know. And as for the populated with a-ses comment -- well, I guess you might be joining the right crowd. Good luck to you.

 

[FDJ2]

Just curious, if somebody bought ASA or Comair would they have to fly for Delta exclusively or could they shop around? If it was for Delta exclusively, I can't see anybody buying them else they will get BAIN'ed just like UAL did to their regional providers.

What do you mean by "somebody"? I very much doubt "somebody" will buy ASA/CMR. OTOH, I could very easily see a limited IPO for a percent ownership of ASA/CMR. Whether or not ASA/CMR can shop around is another deal. Perhaps ASA/CMR could shop around like Skywest and Chautauqua.

 

[G4G5]

G4G5,

How do you know that? Have you called our Crew Resources people? You have?

I was VERY clear, I told you that I read it on the APA web site and I was asking you a simple question. No need to get cute.

They stated that we are so short that we could raise the cap to 83 hours(from the current 75) and still have the recall.

Again, that was not the question, if DAL goes Ch11 then I would fully expect (and in the case of the DAL pilots be prepared for) 95 hours.
If you have any doubts, all you need to do is look at USAir and UAL. With 83 you may need to recall, with 95 hours things could be different. Just do the math, raising the monthly cap equal to the other ch 11 majors creates an instant 21% increase in man power utilization. Did you lose 21% of your pilots to retirement?

You are wrong on a couple counts. First, we are currently SHORT in almost every category, since we have lost 600 Captains since June.(United has lost 124 Captains this year) We are forcast to lose another 500-700 by Feb 1st, since the company allowed the lump sum portion of the pensions to be guaranteed until Feb 1st---and after that---the lump sum portion may be in jeopardy.(They guaranteed it even if a Chap 11 occurs in the mean time---which essentially FORCES most of the 25 year pilots OUT) This was all solved with a TA we just passed two weeks ago, which allows some (not all--a lottery type system was set up--thanks to the IRS) of the Captains to remain until Dec 31st of 2005---or until their replacement is trained.(they have to be GONE by December 31st, 2005)

I think that you are missing the point. An increase of 21% utilization will cover current staffing shortages. To think that Greenjeans will accept anything other then what UAL and USAir has provided is naive. If he intends on taking DAL ch 11, he will want and get 95 hrs. That comes instantly, no training required. Now couple that with another 10-15% increase in utilization with the implementation of preferential bidding, which also creates instanious scheduling relief and you can't possibly have enough retirements that equal the newly created personal efficiencies. What would pref bidding to current reserve requirements? 700-1000 less pilots less is a number that comes up when I talk to our union folks. For AA that number increases to 1200-1500. Ouch. To think that everyone wil take the retirement is a little absurd. Those close to 50 or just a few years past will no doubt be talking to thier financial planners to have them calculate the additional income created by an FAA increase to age 63-65.

The second point is that we are going to a "depeaked hub system" at ATL , which is adding 60 mainline flights a day there. That, combined with the addition of flights at CVG and SLC, and including the downsizing at DFW, will increase our normal fleet by 44 aircraft (thanks to quicker turn times of our own current aircraft fleet). So, we will have to keep our current pilots and probably continue recalling our furloughs---even if our cap is raised---which is rumored to be 83 hours from the current 75. (not 95 like United) With 60 new flights a day at ATL, more reserves will be needed also. We have also added quite a few new INTL routes, (Berlin, an extra flight to Bombay--making two daily, etc) requiring more pilots.

Are you trying to tell me that Ch11 won't bring along an expedited parking of inefficient aircraft like the 737-200 (The loss of AA 74-F100's comes to mind) What about the parking of costly older aircraft, not fleet related. AA parked all the high time close to heavy maintenance aircraft until they could afford to do the heavy checks. Or a possible parking of aircraft leased with unwanted costly leases (AA's TWA 757's, MD 80's or UAL 747's come to mind). What about the inevitable transfer of a certian percentage of domestic routes to Comair/Asa (all you need to do is look at what has happend domesticly at AA, UAL and USAir). If I remember correctly AA transfered close to 16% of the domestic flying to Eagle in the 12 callender months following our new ch11 filing.

I am not saying that we will not furlough again, but with our new "plan"---it is an expansion plan, and with new pay scales and new efficiencies from everyone (including ground people--rampers etc)----our operation will become leaner. There is a good chance that if everything goes as planned (which might not happen)---there could be some real expansion in 2006 according to some management types---after all of the savings are realized.
Nobody knows what will happen if we go Chap 11, but we all know this---there will be a MASS EXODUS of guys trying to protect their hard earned pension (50% anyway).( as of September 1st---we had 1271 guys eligible (age 50 or higher) that could take their lump sums---and 99 left Sep 1st with 71 being early retirements) Sounds like a possible huge exodus to me, and the TA is in place to keep the planes flying.

Expansion? Please provide me with one example of a CH 11 carrier that has actually expanded. It never happens. One quick question, do you think that the TA is the last time that DAL mgt will come knocking for concessions? Or could a ch11 filing bring additional concessions?

Now I hope I am wrong. Nothing could/would be worse. I was only asking because you seem to have some insite as to what could happen. All I was trying to do was compare it to what I have heard/read.

The picture that you just painted seems a bit rosy for me.



Bye Bye--General Lee

Have a nice day