Delta Can AVOID Chap 11 Filing This Year Says Grinstein...

[General Lee]

I'm sure SkyWest would take the debt and in turn they would jack up their fee for departure rates in order to cover the debt. Do you honestly believe SkyWest would take on BILLIONS in debt without getting a revenue stream to service it?

Instead of making debt payments, DL would just pay super high fee for departure rates. Either way, DL WILL still pay. That's the point you seem to miss. The debt expense will not go away, it will just change in form.

Medflyer,

I am not the one missing the point. You and I don't know what if any fee for departure changes there would be, that is speculation. I think Skywest will make money off of the deal, but maybe not all at once. Delta could go into Chap 11 now and cut those fees in half probably, and the judge would go along with it. DL is offering them a deal in terms of purchase price, and along with that you get some debt. There is the value---half off purchase price. As far as what else is happening, GG said in that USAToday article that there will be structural changes. What does that mean exactly? I have no idea, but he does. Here is the article again:


CEO: Delta can avoid Chapter 11 filing this year
By Marilyn Adams, USA TODAY
Delta Air Lines CEO Gerald Grinstein said Monday that he has no plans to close an airport hub or to ask the pilots union for more pay cuts to avert a possible bankruptcy filing later this year.
Delta, the USA's No. 3 carrier, lost $1.1 billion last quarter after losing an industry record $5.2 billion in 2004. The airline has warned that a cash crunch late this year might force a Chapter 11 filing. (Related story: Delta warns of substantial losses for rest of year)

But in an interview with USA TODAY, Grinstein said no drastic new cost cuts are necessary.

"Our plan is to make structural changes to the airline, rather than temporary changes," he said.

Grinstein, 72, had been a longtime member of the Delta board when he was tapped to replace former CEO Leo Mullin. He has held the top job since January 2004.

Delta narrowly averted a bankruptcy filing late last year by negotiating $1 billion a year in cuts from its pilots union, borrowing to raise cash and other steps.

It recently closed its hub at Dallas/Fort Worth airport and is cutting 7,000 jobs companywide. It has simplified its fares and reorganized the schedule at its giant Atlanta hub airport to get more flights out of the same planes.

But Delta has been hit hard by record fuel prices this year and brutal fare competition on its domestic routes.

It's facing $3.1 billion in pension payments in the next three years. To raise cash, it's considering selling assets such as one or both of its wholly owned regional carriers, Cincinnati-based Comair and Atlanta-based Atlantic Southeast.

In a research note in late April, Calyon Securities airline analyst Ray Neidl estimated Delta is burning through $4 million in cash a day. At that rate, he said, Delta's cash would dwindle to a dangerously low $466 million by year's end. "Delta appears to be the most likely candidate for a bankruptcy filing this year based on its liquidity position," Neidl said.

Delta competitors United Airlines and US Airways have opted for bankruptcy protection as they attempt to restructure.

Following US Airways' lead, United is seeking to terminate its costly pension plans, which would give it an advantage over competitors.

"It's troubling to see one set of rules for one company," Grinstein said of United. Yet Grinstein says he does not regret the decision not to seek Chapter 11 protection last year and thinks bankruptcy this year is avoidable.

CFO Michael Palumbo, who was also interviewed, said he could not predict when Delta would have to decide whether to file.

He declined to talk in detail about how Delta would raise financing to continue operating in bankruptcy. Virtually all of Delta's collateral already has been pledged to lenders to raise cash.

Delta's cost-cutting plans are having an impact, however, the executives said. This year, Delta will spend $2 billion less cash than in 2004, and spending will drop an additional $1 billion next year.



We will all have to wait and see what he means by "structural changes"---but it doesn't sound like base closures. Maybe an eventual merger?


Bye Bye--General Lee

 

[PBRstreetgang]

GL,
SKYW has repeatedly told anyone who will listen "We don't buy airlines, we buy assets", this came after the infamous Sunair deal.
Everyone keeps spouting about assumption of debt, correct me if I am wrong most aircraft are leased, not owned by the operating airline. If an airline is bought in todays times, all that is purchased are the contracts(equipment and people). The advantage that SKYW enjoys is fiscal, with a good credit rating, the contract for aircraft can be lower, combine that with the roll over and stick their a$$ in the air willingness to fly 70 for 50 seat pay a/c, voila lower operating costs. I would not want to be at any airline SKYW is looking to "buy", the employees will get the shaft in a huge way, SKYW will not bring you and your senority over, they will offer you a preferrential interview, and new hire status with the lure of a quick upgrade. SKYW management has repeatedly told us that low overall employee longivity is their key to keeping low operating costs. It should not be a suprise that SKYW mgmt. are in ATL, don't SKYW and DAL do a little bit of business?
PBR

 

[General Lee]

According to my Skywest friend in SLC, that's not what your people said a couple weeks ago in recurrent. Maybe you need to ask around a bit. As far as I know, there COULD be something going on. There may be a prepackaged bankruptcy deal being made right now. I don't know.



Bye Bye--General Lee

 

[~~~^~~~]

Wrong. The value of a business can be determined by looking at the net present value of future cash flows. Any potential buyer (or the public in a spinoff) would look at a set contract over a certain time horizon (say an 8 year contract with a certain percentage of the flying at a certain rate per flight that is adjustable based on xyz factors). If you can guarantee a certain amount of the flying, you can determine a value based on those projected cash flows.

It aint that easy, on several fronts. First, Enron has taught everyone a lesson in mark to market accounting. Booking future activity is not as easy as it used to be and nearly everyone is smart enought to ask, "yeah, but how does that make money."

Bottom line is that nobody in the US passenger airline business is making money, or will make any money, in the current environment. I expect even might Southwest will post a loss when fuel hedges expire.

Until and unless fuel prices relent and two majors depart the marketplace everyone's prognosis is poor and Delta, unfortunately, is near the bottom of the heap. I doubt anyone will throw and real money at Delta. Even those with a reason to keep Delta in business have very limited capital and some sort of control of the Delta operation will have to be traded away to provide security.

As others have mentioned - Delta management - and ALPA - may have destroyed the value of the ASA and Comair asset by aloowing too many alter ego entrants in a market where there just are not enough dance partners.

 

[PBRstreetgang]

GL,
I am at SKYW and have personally talked to the CEO Jerry A. while he was in my jumpseat and various training events. Purchase of another carrier and taking on the emplyees at their current pay levels is a direct contradition to their base plan of keeping the employee longivity low through growth and attrition. We are not currently losing many pilots to other carriers, so the longivity thing is slower than they would like. I have heard Air Wis, Comair, ASA rumors aplenty. Anything heard by a buddy is just a rumor, the SEC would BBQ any officer who let the cat out of the bag. GL until you realize that the enemy is managment not your fellow pilots(regional or otherwise), your flying will continue to evaporate and condense at some regional carrier that you show so much distain for.
PBR

 

[sleepy]

General, just wondering, how much DAL stock did you buy today? It's really a bargan at $2.74 per share. Honestly, what difference does the sale of ASA or Comair make at this point? Maybe that would boost the price to $3.00 per share.

Delta Stock Dips to 32-Year Low on Warning

By HARRY R. WEBER, AP Business WriterWed May 11, 5:49 PM ET



Delta Air Lines Inc.'s battered stock fell Wednesday to its lowest level in more than 32 years. Shares of the nation's third-largest carrier fell 23 cents, or 7.7 percent, to close at $2.74 in trading on the New York Stock Exchange following the company's warning about further losses and the possibility of bankruptcy.

Delta's 52-week low for its stock had been $2.93, the closing price on Oct. 20, 2004, around the time the airline almost fell into bankruptcy before winning deep concessions from pilots and fresh financing from creditors.

"It's the lowest going back to Jan. 2, 1973 when we began tracking stock prices," said Jaseem Hasib, a research analyst with Thomson Financial. A company spokesman could not immediately say if the stock is at its lowest point ever.

Delta warned in a filing with the Securities and Exchange Commission on Tuesday that it will record a substantial loss for the rest of the year and will need to file for bankruptcy if its cash reserves fall too low or lenders seek immediate payment of its debts.

Some analysts reduced their expectations for the airline following the warning.

Analyst Bob McAdoo of Prudential Equity Group LLC said in a research note Wednesday that his firm has been concerned "for some time" that the list of steps being taken in Delta's transformation plan is insufficient to fix the airline's problems. He said the firm has reduced its price target for Delta's stock from $9 to $1.

In the SEC filing, Delta said that it is considering several moves to keep itself afloat, including more cost cuts and potential asset sales. But even that may not be enough, Delta said.

Delta, which reported a nearly $1.1 billion loss in the first quarter, had $1.8 billion in unrestricted cash at the end of March. But the airline said in the filing that it expects that its cash level will be substantially lower by the end of the year if it can't increase revenue, cut more costs, sell assets or restructure debt.

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