DAL BK worst option for recovery

[FDJ2]

Delta CEO says conditions worsen
Bankruptcy considered the worst option for recovery

By Matt Andrejczak, CBS.MarketWatch.com
Last Update: 11:51 AM ET June 16, 2004 WASHINGTON (CBS.MW) -- Delta Air Lines, the nation's third-largest airline, cannot survive as it is now structured but filing for bankruptcy is not an attractive option, Delta's CEO Gerald Grinstein told investors Wednesday.

"We are working to achieve Delta's goals without seeking court protection," Grinstein said, speaking at a Merrill Lynch investment conference. "That is the best outcome for all parties."

In morning trades, Delta (DAL: news, chart, profile) lost 23 cents to $5.72.

Atlanta-based Delta, which had the industry's lowest cost structure and best operating margins prior to 2000, is scrambling to overhaul its cost structure as it fights to stave off competition from low-fare carriers.

Its fuel costs are projected to be $670 million higher than last year and its pension plan is underfunded by $5.7 billion. What's more, Delta's access to capital on reasonable terms is nonexistent.

"During this year, the company's financial condition has significantly worsened," Grinstein said. "We are in an environment where we have no pricing power, yields are continuing to erode and all that is occurring in the face of an improving economy."

Delta is particularly exposed to upstarts like Airtran (AAI: news, chart, profile), JetBlue (JBLU: news, chart, profile) and Southwest (LUV: news, chart, profile), which have far lower operating costs than the traditional airlines. About 70 percent of Delta's markets are exposed to these low-cost carriers, Grinstein said.

Delta expects to finish a top-to-bottom review of its operations by the second or third week of August. Still, Grinstein cautioned that the review will not be some magic recipe that will be Delta's savior.

The goal, he said, is to define a viable cost structure.

Ultimately, Grinstein looks for Delta to post double-digit operating margins in heady economic times and be profitable -- or be close to profitability -- during downturns.

Since 2000, Delta has cut about $2 billion in costs and has signaled that it wants to nonlabor cost savings of $1.5 billion by 2006. It also wants it pilots to take a 30 percent pay cut. But Grinstein warned that pilot costs alone would not solve all of Delta's problems.

Speculation that Delta will be unable to avert bankruptcy has drawn the interest of short sellers. The short interest in Delta shares has doubled since the start of the year.

During his address, however, Grinstein downplayed Delta's near demise. "The reports of our death our premature," he said.

 

[General Lee]

Sounds like the "AA Squeeze." I have a feeling Dalpa will concede some pay---maybe even up to that 30%--but with other assurances like relief from creditors etc.....and maybe even a good plan going forward. With the passengers levels back from pre-9-11 days--I don't see much down sizing at all. The idea now is to capture as much revenue as you can, not give it away. But, they will center this on reduced salaries---which is a start.


Bye Bye--General Lee

 

[InclusiveScope]

General Lee said:

"With the passengers levels back from pre-9-11 days--I don't see much down sizing at all."

General,
The number of passengers does not matter - what matters is what fare are they paying to ride? Which is better General:

A. 100% load factor with free tickets?

or

B. 50% load factor with $100 tickets?

"We lose $.50 on each seat, but we make it up in volume?"

 

[MedFlyer]

"We lose $.50 on each seat, but we make it up in volume?"

Everything that I've ever heard come from the General seems to indicate that this is his strategy for DL.

 

[InclusiveScope]

Everything that I've ever heard come from the General seems to indicate that this is his strategy for DL.

MedFlyer,
The General knows everything about this industry! If only he were Delta's CEO - he would have Delta profitable without any concessions! (TIC:>})

 

[letthebigdogeat]

and no RJs

 

[InclusiveScope]

and no RJs

Not only no RJs, but Delta should fly 777's everywhere because as the General has stated, larger aircraft have lower CASMs. Just think how much Delta could save if they flew larger aircraft everywhere. Maybe Delta should fly an entire fleet of 747's and charge $5.00 per seat. With a single fleet type, 100% load factor, low CASM (big airplane), and large overhead bins - Delta would be printing money. Airline Econ 101 by General Lee!

Bye bye!

 

[General Lee]

Man alive, you guys are really funny! I loved all of your bonehead responses. Yes, Delta has some problems, and I am not against giving up pay. But, we must also have a real plan, and the creditors must also come through with concessions. I have said this all along. The RJs have been a problem in some ways. Many of our best customers HATE them. Medflyer and Inclusive Scope don't want to acknowledge this---especially since their classic response is "Well hey, you always get a window seat or an aisle....." Ridiculous. RJs are only good when there is no direct LCC competition and you have the ability to charge higher fares on those routes. They were useful when the pax numbers were low---but now that we need every darn passenger we can get to supply revenue---they are not as useful as right after 9-11. You guys can't admit that. Mike Boyd and other analysts can see that, and even Grinstein sees it----he is YOUR BOSS.


Inclusive Scope,

You don't want to see the truth. The truth is that RJs are clogging up the ATC system while not bringing in enough revenue. With passenger numbers back to pre-9-11 levels, it would be great if we still had the same number of mainline planes as pre-9-11, but we don't. Instead we have smaller planes on old mainline routes that now could support them again, and the fares--thanks to the LCCs are falling. I never said we should have 777s flying on old 727 routes, but 50 seat RJs are not the answer. Airtran has seen this and decided to drop their 50 seat RJ feed. Jetblue wants nothing smaller than 100 seaters, and Southwest doesn't have any RJs. Now, we can't go the LCC route because we have INTL flights with widebodies, and we do have a large hub and spoke system depending on feed----but today we have 50 seat RJs bringing in less feed than we did before--when we had 727s and other planes doing the same cities.

Some day you are going to figure out that if we can only get $XXX amount for a ticket, we need to have more seats to bring in more revenue---and that doesn't equate to RJs.....The RJDC is worried for a reason....

Medflyer,

Are you still hurting about yesterday and how I kept bringing in articles supporting my assertions about Song and their 1/4 cut in September? You got worked! Now you are trying to say anything to tear me down. It won't work. Sorry.

Bye Bye--General Lee

 

[MedFlyer]

Not only no RJs, but Delta should fly 777's everywhere because as the General has stated, larger aircraft have lower CASMs. Just think how much Delta could save if they flew larger aircraft everywhere. Maybe Delta should fly an entire fleet of 747's and charge $5.00 per seat. With a single fleet type, 100% load factor, low CASM (big airplane), and large overhead bins - Delta would be printing money. Airline Econ 101 by General Lee!

Bye bye!

Nevermind the 777's, I hear Airbus will give a good deal on some A380's. Imagine how low the CASM would be....DL wouldn't even have to charge. They could just sell some food on board and make money.

I'm sure the General won't mind sitting left seat on the inaugural flight from ATL to EYW!!!!

 

[General Lee]

Medflyer is desperate for a laugh, but is crying on the inside. I almost feel sorry for him...


Bye Bye--General Lee

 

[xanderman]

i'm curious!

MedFlyer, Inclusivescope,

Don't you guys want to fly bigger airplanes someday? Why the defense of RJ's?
Andy

 

[MedFlyer]

Man alive, you guys are really funny! I loved all of your bonehead responses. Yes, Delta has some problems, and I am not against giving up pay. But, we must also have a real plan, and the creditors must also come through with concessions. I have said this all along. The RJs have been a problem in some ways. Many of our best customers HATE them. Medflyer and Inclusive Scope don't want to acknowledge this---especially since their classic response is "Well hey, you always get a window seat or an aisle....." Ridiculous. RJs are only good when there is no direct LCC competition and you have the ability to charge higher fares on those routes. They were useful when the pax numbers were low---but now that we need every darn passenger we can get to supply revenue---they are not as useful as right after 9-11. You guys can't admit that. Mike Boyd and other analysts can see that, and even Grinstein sees it----he is YOUR BOSS.

Medflyer,

Are you still hurting about yesterday and how I kept bringing in articles supporting my assertions about Song and their 1/4 cut in September? You got worked! Now you are trying to say anything to tear me down. It won't work. Sorry.

Bye Bye--General Lee

I'm sure our best customers do hate the RJ's. And guess what, most of our best customers hate Song too. Don't believe me, go visit flyertalk.com and see what all of DL's frequent flyers have to say about Song. It's not pleasant. They hate Song just as much as they hate the RJ's. They used to have first class to Florida from LGA and now they get stuck in the back and treated like cattle. Guess what? They are abandoning Song and flying CO (CO has first class) to Florida which is why Song has to pull its schedule down 30% in September.

The point you don't understand General is that it doesn't matter how many passengers you bring into the system if you are losing money on every one of them. DL is losing money on a route like ATL-LAX where they fly widebody aircraft? Why? Because they have to charge such ridiculouly low-fares in order to compete with Airtran. It doesn't matter how big the plane is...DL still loses money.

 

[General Lee]

Medflyer,


A lot of that will be taken care of with salary cuts and creditor contributions. Our costs are out of whack right now, and that will be taken care of and we will be able to compete better. And, where do you get that about Song? That website, huh? I actually fly Song a lot, and I see the people as the get off the plane and I listen to their comments, and I beleive 95% LOVE IT. They like the TVs a lot, and they like the customer service and food. Have you ever been on Song? Ever? Admit it--you have not. I have flown on your RJs--and I can tell you that I hear a lot of complaints from our FF's and anyone larger than 6 feet tall and over 200 lbs----and that is a lot of people. I will admit that RJs are better than props---but RJs are not good on flights over 2 hours--and even your Boss and mine believes that. As long as he does--you are losing this battle. Sure, you guys will then say---"it isn't much better in the back of a 757....." Well, you have more choices of bathrooms, you don't have to climb up stairs to board, and you have a chance at movies and food.

You are grasping for straws......and Song is great and people love it----I see it firsthand.

Bye Bye--General Lee

 

[NYRANGERS]

They do

MedFlyer, Inclusivescope,

Don't you guys want to fly bigger airplanes someday? Why the defense of RJ's?
Andy

I think they do, they just hope to do it either through a lawsuit or by a Chap 11 filing that they think might give them our airplanes.

They will say they don't. But they are just two guys of many who don't like their lot in life. They figure if they can steal a better life, good, if not...bring the rest down.

NYR

 

[MedFlyer]

MedFlyer, Inclusivescope,

Don't you guys want to fly bigger airplanes someday? Why the defense of RJ's?
Andy

Sure, I want to fly bigger planes someday. But in order for that to happen, you have to a business plan that works. The General's business plan (flood the market with cheap seats) is suicide. DL has tried flooding markets with mainline capacity to fight the LCC's....it doesn't work.

He complains that the RJ's are cutting off feed to the hubs. But on another post, he's boasting about how full the mainline planes and international flights are. Well if the RJ's are cutting off feed, then why are these mainline flights so full????

The bottomline is that DL mainline is broken. DL's costs and fare structure are out-of-whack, customer service is a mess and DL's route structure is poor (relies too heavily on low-yield connecting traffic). Fix these problems and then mainline growth will follow. But if DL simply throws capacity at the problem...you've got a guaranteed ticket to BK.

 

[MedFlyer]

Medflyer,


You are grasping for straws......and Song is great and people love it----I see it firsthand.

Bye Bye--General Lee

I'm sure Ma and Pa who fly once a year love Song. Unfortunately, the frequent fliers who generate most of DL's income don't like Song. They want first class seats...Song doesn't offer that. DL has to decide what they want to be...a leisure carrier that attracts all the once a year fliers OR a global airline that serves frequent fliers. Your anecdotal evidence isn't convincing as you are very prone to exaggeration.

I have flown Song once. The TV's were very nice and most customers seemed pleased. Of course, the plane was only half full, so I doubt the flight made any money.

 

[General Lee]

Medflyer,


And all of your RJ flights are always full.......Most of my Song flights as of late have been full. And, how do you know who are passnegers are on Song? On some of the city pairings, the choice is either Jetblue or Song---with no first class option anyway. You are trying to come up with reasons to hate Song and try to show mainline losses, when your RJs can be blamed for not being able to bring in enough revenue at a critical time, and their uncomfortable seating. Which do you thing businessmen prefer? Song or RJs? I would venture a guess that Song wins in the eyes of businessmen if they had to choose. And, if they are half full---that gives the businessmen even more room.......

Bye Bye--General Lee

 

[InclusiveScope]

MedFlyer, Inclusivescope,

Don't you guys want to fly bigger airplanes someday? Why the defense of RJ's?
Andy

Xanderman,
That is a simple question, yet it is not a simple answer. Let's examine the three main reasons that pilots in this field want to fly "bigger airplanes".

1. More money

2. A perceived or real idea that it would be "cool" to fly big equipment

3. Resume building - something to add to the "experience" column so as to be more competitive in the hunt for that "dream job".

I find it ironic that you are asking this question. It appears that you are an America West pilot. At America West, you fly aircraft that range in size from 113 seats up to 190 seats. The payrate is the same for all these aircraft at America West. In addition, your top Captain rate is $137.72. The top Captain rate at Comair is $113.12. Next year, the top Captain rate at Comair will be $118.22.

So to recap: The extra 120 seats between your 757 and Comairs CL700 nets you about $20. To put it another way, if I decided today that "you know what, that Xanderman sure is a smart fella - I want to go fly the "bigger" 757 at America West". It would take me about 15 years to get back to my current pay. In the meantime, I would lose money and I would lose scheduling QOL. I currently have 4 weeks of vacation and can hold lines that have 18 days off.

If that is what you mean when you ask if I want to fly a larger aircraft, then the answer would be NO!

That covers reason #1 to fly bigger aircraft.

As for reasons #2 and #3. The answer was Yes, but now it is No. These reasons are part of the problem. Pilots are willing to fly bigger aircraft for the "thrill" and for the resume. I don't need either.

I don't want to bust your chops Xanderman, but rather than ask why I am defending 50 and 70 seat airliners, the questions you should be asking are:

1. Why are these airliners now considered "RJs" when they used be called DC9s and Fokkers?
and
2. Why does the union continue to support multiple alter-ego carriers bidding on flying with a single management?

These are the important questions, not whether or not "RJs" are airliners - they are just as much an airliner as is your 757.

Take care.

 

[vc10]

Man alive, you guys are really funny! I loved all of your bonehead responses. Yes, Delta has some problems, and I am not against giving up pay. But, we must also have a real plan, and the creditors must also come through with concessions.

Some creditors are basically impossible to get concessions from outside of bankruptcy. Public market debt (i.e. bonds) require unanimity from their holders to change---so someone holding $10K worth of a $500MM bond can block concessions from that bond. Private market debt (e.g. bank debt) and leases not backed by public market debt are more flexible.

One way or the other the pilots are going to be "marked-to-market"---there is no way to avoid this outcome, short of oil going to $10/barrel. Delta pilots are not in a position to avoid this, whatever management does (but if management is smart, it will do its best to make it go down easy).

The only real choice the pilots have is whether this happens inside or outside of bankruptcy. And the American and United payscales are not a floor on what Delta pilots will make post-bankruptcy. JetBlue is a significant Delta competitor---why shouldn't the judge consider the JetBlue payscale when Delta files a section 1113 motion?

 

[General Lee]

vc-10,

A lot of what you said is obvious, and no one here is saying we won't take a large pay cut. As far as creditors go, some---like Boeing---have a lot at stake and would take some sort of cut rather than lose half in court. I would venture that many vendors and creditors would rather have a good outcome than bad, and obviously Delta pilot pay cuts aren't the ONLY answer.


The key here is to get some pay cuts, get some creditor discounts, get a bond rating increase, and then get new financing with the help of the capital markets--which happened overnight with American Airlines. Oil prices will eventually fall (they are down $5 from the high $42 range two weeks ago), and with all of the new costs in line---a general recovery will take place.

Bye Bye--General Lee