General Lee
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- Aug 24, 2002
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Monday March 15, 2:36 pm ET
By Pamela Tate
NEW YORK -- Shares of Delta Air Lines Inc. (NYSE
AL - News) fell Monday after the company warned that higher fuel costs and continued pressure on passenger revenue would result in a wider-than-expected loss in the first quarter.
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In an annual report filed with the Securities and Exchange Commission (News - Websites) Friday, the Atlanta-based air carrier said it expects to post a first-quarter loss of about $400 million. In mid-January, the company estimated a loss between $300 million and $350 million for the quarter.
Delta attributed about $47 million of the revised loss estimate to fuel- related expenses, such as sustained higher fuel prices and the cost to settle hedge contracts. The company's average fuel price per gallon rose 22% for 2003.
The company, which has maintained hedge positions of 50% to 65% for the past two years, liquidated its hedge contracts in February for $83 million in cash. Delta will recognize a $17 million expense on the settlement in the first quarter, as an adjustment of the hedge's fair value.
Some on Wall Street were surprised that Delta had liquidated its fuel hedges.
"Presumably, this raised some cash and locked in gains to be amortized over future periods," Morgan Stanley's William J. Greene wrote in a research note Monday. "However, this leaves DAL unhedged at a time when its credit outlook is not improving (in our view), which may make it more difficult to establish future hedge positions."
Other major airline stocks were also depressed Monday. The airline index was the worst performing Monday out of the 86 sector indexes that Dow Jones follows.
Glenn Engel, an analyst at Goldman Sachs, said other major carriers are more likely to cut their estimates on fuel concerns now that Delta has. He also said that there is a wider concern in the market about the "greater likelihood" that al Qaeda may have had some responsibility in the Madrid train bombs last week.
Near 2:15 p.m. EST, shares of Delta were down $1.08, or 12%, at $7.76 on the New York Stock Exchange (News - Websites) . Earlier, the stock hit a 52-week low of $7.34.
Meanwhile, Continental Airlines Inc. (NYSE:CAL - News) shares fell 11%, Northwest Airlines Corp. (NasdaqNM:NWAC - News) dropped 10% and AMR Corp. (NYSE:AMR - News) stock slipped 7%.
Mr. Engel expects higher fuel costs to affect the earnings estimates of other major airlines as well, since Delta had a slightly better hedged position than others. However, Mr. Engel said, other airlines can rely more on a strong showing in international routes to pick up the slack and partially offset those fuel prices.
Goldman Sachs intends to seek compensation from Delta for investment-banking services in the next three months. Goldman has managed or co-managed a public offering in the past five years and is a specialist in Delta securities.
Adding to Delta's woes, analysts noted Monday, is the company's labor problems. Delta's pilots are among the best-paid in the industry, and though their contract doesn't expire until 2005, Delta already has asked them to take a 30% salary cut. The pilots have offered a 9% reduction, The Wall Street Journal has reported.
"All eyes are on the pilots at Delta, and Friday's warning actually strengthens management's argument that DAL's current cost structure is unacceptable," Jamie Baker, an analyst for JP Morgan Securities Inc., wrote in a research note.
JP Morgan's Mr. Baker warned that "the situation at Delta will likely worsen before showing any signs of progress." JP Morgan, co-managed a Delta offering within the past 12 months and intends to seek compensation for investment banking.
The pressure for Delta to lower its cost structure has been building as low- cost carriers have steadily gained market share.
Earlier this month, newly installed Chief Executive Gerald Grinstein said low- cost airlines currently have about 20% of the domestic market and that will probably go as high as 45% in the next five or six years. Given the new environment, Mr. Grinstein ordered a full review of operations and even halted the growth of Song, the unit intended to compete head-to-head with low-cost airlines.
Delta noted "continuing weakness on the revenue side" and "pressures on passenger revenue" in a press release Friday announcing the lowered guidance. A company spokeswoman wasn't immediately available to comment further.
Morgan Stanley, the firm employing analyst Mr. Greene, owns at least 1% of Delta common stock, and the firm has managed a public offering and received compensation for investment banking within the past 12 months.
- Pamela Tate, Dow Jones Newswires; 201-938-5400
Read this part AGAIN:
"The company, which has maintained hedge positions of 50% to 65% for the past two years, liquidated its hedge contracts in February for $83 million in cash. Delta will recognize a $17 million expense on the settlement in the first quarter, as an adjustment of the hedge's fair value.
Some on Wall Street were surprised that Delta had liquidated its fuel hedges.
"Presumably, this raised some cash and locked in gains to be amortized over future periods," Morgan Stanley's William J. Greene wrote in a research note Monday. "However, this leaves DAL unhedged at a time when its credit outlook is not improving (in our view), which may make it more difficult to establish future hedge positions."
Who made that decision? I guess the pilots need to pay for it AGAIN.....
Bye Bye--General Lee
By Pamela Tate
NEW YORK -- Shares of Delta Air Lines Inc. (NYSE
AL - News) fell Monday after the company warned that higher fuel costs and continued pressure on passenger revenue would result in a wider-than-expected loss in the first quarter.ADVERTISEMENT
In an annual report filed with the Securities and Exchange Commission (News - Websites) Friday, the Atlanta-based air carrier said it expects to post a first-quarter loss of about $400 million. In mid-January, the company estimated a loss between $300 million and $350 million for the quarter.
Delta attributed about $47 million of the revised loss estimate to fuel- related expenses, such as sustained higher fuel prices and the cost to settle hedge contracts. The company's average fuel price per gallon rose 22% for 2003.
The company, which has maintained hedge positions of 50% to 65% for the past two years, liquidated its hedge contracts in February for $83 million in cash. Delta will recognize a $17 million expense on the settlement in the first quarter, as an adjustment of the hedge's fair value.
Some on Wall Street were surprised that Delta had liquidated its fuel hedges.
"Presumably, this raised some cash and locked in gains to be amortized over future periods," Morgan Stanley's William J. Greene wrote in a research note Monday. "However, this leaves DAL unhedged at a time when its credit outlook is not improving (in our view), which may make it more difficult to establish future hedge positions."
Other major airline stocks were also depressed Monday. The airline index was the worst performing Monday out of the 86 sector indexes that Dow Jones follows.
Glenn Engel, an analyst at Goldman Sachs, said other major carriers are more likely to cut their estimates on fuel concerns now that Delta has. He also said that there is a wider concern in the market about the "greater likelihood" that al Qaeda may have had some responsibility in the Madrid train bombs last week.
Near 2:15 p.m. EST, shares of Delta were down $1.08, or 12%, at $7.76 on the New York Stock Exchange (News - Websites) . Earlier, the stock hit a 52-week low of $7.34.
Meanwhile, Continental Airlines Inc. (NYSE:CAL - News) shares fell 11%, Northwest Airlines Corp. (NasdaqNM:NWAC - News) dropped 10% and AMR Corp. (NYSE:AMR - News) stock slipped 7%.
Mr. Engel expects higher fuel costs to affect the earnings estimates of other major airlines as well, since Delta had a slightly better hedged position than others. However, Mr. Engel said, other airlines can rely more on a strong showing in international routes to pick up the slack and partially offset those fuel prices.
Goldman Sachs intends to seek compensation from Delta for investment-banking services in the next three months. Goldman has managed or co-managed a public offering in the past five years and is a specialist in Delta securities.
Adding to Delta's woes, analysts noted Monday, is the company's labor problems. Delta's pilots are among the best-paid in the industry, and though their contract doesn't expire until 2005, Delta already has asked them to take a 30% salary cut. The pilots have offered a 9% reduction, The Wall Street Journal has reported.
"All eyes are on the pilots at Delta, and Friday's warning actually strengthens management's argument that DAL's current cost structure is unacceptable," Jamie Baker, an analyst for JP Morgan Securities Inc., wrote in a research note.
JP Morgan's Mr. Baker warned that "the situation at Delta will likely worsen before showing any signs of progress." JP Morgan, co-managed a Delta offering within the past 12 months and intends to seek compensation for investment banking.
The pressure for Delta to lower its cost structure has been building as low- cost carriers have steadily gained market share.
Earlier this month, newly installed Chief Executive Gerald Grinstein said low- cost airlines currently have about 20% of the domestic market and that will probably go as high as 45% in the next five or six years. Given the new environment, Mr. Grinstein ordered a full review of operations and even halted the growth of Song, the unit intended to compete head-to-head with low-cost airlines.
Delta noted "continuing weakness on the revenue side" and "pressures on passenger revenue" in a press release Friday announcing the lowered guidance. A company spokeswoman wasn't immediately available to comment further.
Morgan Stanley, the firm employing analyst Mr. Greene, owns at least 1% of Delta common stock, and the firm has managed a public offering and received compensation for investment banking within the past 12 months.
- Pamela Tate, Dow Jones Newswires; 201-938-5400
Read this part AGAIN:
"The company, which has maintained hedge positions of 50% to 65% for the past two years, liquidated its hedge contracts in February for $83 million in cash. Delta will recognize a $17 million expense on the settlement in the first quarter, as an adjustment of the hedge's fair value.
Some on Wall Street were surprised that Delta had liquidated its fuel hedges.
"Presumably, this raised some cash and locked in gains to be amortized over future periods," Morgan Stanley's William J. Greene wrote in a research note Monday. "However, this leaves DAL unhedged at a time when its credit outlook is not improving (in our view), which may make it more difficult to establish future hedge positions."
Who made that decision? I guess the pilots need to pay for it AGAIN.....
Bye Bye--General Lee
