Delta gets a lifeline...

[350DRIVER]

Good news for DAL. Doesn't look like 11 is as for sure as some would tend to believe

http://www.usatoday.com/travel/news/2004-10-25-delta-financing_x.htm



American Express commits $600 million to Delta
By Marilyn Adams, USA TODAY
Scrambling to avert a bankruptcy filing, Delta Air Lines (DAL) on Monday announced a deal with American Express (AXP) for critically needed cash.
Delta said American Express, which issues the Delta SkyMiles credit card, has committed up to $600 million to the airline. In a securities filing, Delta said that funding is part of a larger loan package involving other lenders.

Because commitments from other lenders aren't final, Delta didn't identify them. Nor did Delta specify the size of the entire pending loan package.

General Electric, which has financed planes for Delta, is one of the other lenders, said a source outside Delta who was briefed on the loans. A spokesman for GE Capital declined comment.

Jerry Grinstein, CEO of the No. 3 airline, said the deal with American Express "demonstrates the commitment and determination of one of our key stakeholders in helping to restructure the company."

American Express will lend Delta $100 million as part of the larger package with other lenders. The remaining $500 million will be a prepayment for SkyMiles, which the credit card company buys from Delta each month as card holders redeem them for travel.

The American Express loan is contingent on other major cost cuts at the carrier, including $1 billion a year from pilots, the best-paid in the industry. Negotiations with the Air Line Pilots Association were continuing Monday night in Herndon, Va., outside Washington, D.C.

The site of the talks, which moved Sunday from Florida to ALPA's national offices, suggests they've reached an advanced stage. Delta's shares closed Monday at $3.78, up nearly 17%, as investors anticipated an agreement.

If no agreement is reached in coming days, Delta could seek Chapter 11 bankruptcy protection quickly, possibly this week.

Delta announced last week that its cash plummeted by $550 million in the quarter ended Sept. 30, to $1.45 billion.

Several Wall Street analysts projected that record fuel prices could drain Delta's cash to dangerously low levels by year's end, forcing a Chapter 11 filing even if it were to get big contract concessions from pilots.

If Delta gets costs down enough, an infusion of cash could help keep Delta aloft during the traditionally slow winter flying season. Delta is working with investors to reduce its overall debt, and delay payments due next year. Today is the deadline for key bondholders to tender their securities and relieve the airline of some financial pressure.

By making the exchange, bondholders would gain debt backed by collateral, as well as Delta stock. Delta would be allowed to push maturity dates further into the future.

Atlanta-based Delta has lost $6.2 billion since the beginning of 2001 and is saddled with $21 billion in debt.

Delta already has announced 10% across-the-board pay reductions for non-pilot employees and other cost cuts, including the shutdown of its hub at Dallas/Fort Worth.

 

[jetflyer]

Thank God for the Lifeline

This changes things dramatically. $500 of the $600 million from AMEX is still just a PREPAYMENT, but still it helps in the short run.

This could save Delta from CH 11 in my opinion.

My assumptions are based on this money being used as cash. It can all be used as cash right?? If it can't then my analysis is way off.

Their cash in my opinion, for what that's worth, after adding this $600 million would be around the current level of $1.5 billion at the end of the year. This is without IMMEDIATE pay cut help from the pilots.

NEXT YEAR things look much better, again in my opinion.
$1,000,000,000 savings from the pilots
$1,000,000,000 savings from other employees
$2,000,000,000 TOTAL SAVINGS PER YEAR
$500 MILLION savings per QUARTER

$500 MILLION savings per QUARTER is not bad. Brings Delta ATLEAST CLOSE TO BREAK EVEN!! Then if you add in the savings from creditors things might look better. Plus the UNFORTUNATE closure of the money losing DFW base may make 2005 better for Delta.

This all of course only makes Delta better for the next couple years.
1)Delta still one day has to pay this debt.
2)Delta still has to get used to high fuel costs which I think and many analysts think are going to stay above about $45/barrel for the long run.
3)Also the LCCs and other majors will keep expanding faster than demand making it harder and harder to fill seats in the long run with out ticket prices coming down again.
4)More people will learn how to use the dang INTERNET every day to get their CHEAP TICKET.
5)The LCCs will still be keeping ticket prices down as well, because many of them can still get close to break even or make money at these ticket prices making low ticket prices a reality for everyone for the long run.

One day Southwest will have to buy fuel at $50/barrel if it stays this high for the long run. It may be what 2-5 years from now when those fuel hedges finally go kaput? But someday they will!!! That could help the whole industry if they are forced to raise their ticket prices.

I know this has been covered so many times before, but with no Ch 11 I guess Delta will have to give Skyway Airlines the Dojets now too?? This is unfortunate. This would help Indy Air and Skyway's owner Midwest Airlines, two of Delta's competitors.

This $600 million from AMEX is wonderful. Wow things change overnight. Who knows 1st Quarter '05 Delta only loses about $100-200 million or so??!! Right now only losing that amount of money would be great.

Good luck to Delta, Comair, and ASA and all employees and their families with ties to Delta.

Jetflyer

 

[SYXDude]

I know this has been covered so many times before, but with no Ch 11 I guess Delta will have to give Skyway Airlines the Dojets now too?? This is unfortunate. This would help Indy Air and Skyway's owner Midwest Airlines, two of Delta's competitors.

Midwest is a competitor of Delta? Hardly...

MKE-ATL: average 3 flights a day (on an 88 seat 717)

MKE-CVG: flights recently dropped by Skyway (was flown by the mighty 1900)

MKE-SLC: Non-existent

Everyone knows Midwest is only interested in the MKE business traveler.

We aren't that much of a threat to Delta...

 

[jetflyer]

SYXDude,

Delta has flights to MKE don't they? That business flyer doesn't have to be flying to CVG, ATL, or SLC. MANY OF THEM connect through those hubs to cities that Midwest Airlines does go to. They are competitors.

Wouldn't it be funny if 10-20 years from now Midwest Airlines was one of the top 10 airlines in the U.S. Companies grow, and Midwest Airlines will probably grow more than it would have with the help of Skyway's codeshare with Delta. Then Midwest could be one of the airlines that helps put the final nail in the coffin for Delta. Anything is possible.

I also think every airline in the U.S. and even international airlines that fly to the U.S. are competitors of Delta. It's all flying Delta COULD be doing.

Jet

 

[Clyde]

I don't know if this is good or bad. Delta is in some serious debt. Now they are borrowing to help out their financial situation, i.e., using debt to solve a debt issue.

Now, before the flame hits, I know this is badly needed, and yes, it will help Delta. At least in the short run. But, this is like a band-aid. I hope they have a plan to pay this off as well as everything else they owe. It's not good to solve money problems with money. You need a change in upper management to fix that one.

 

[General Lee]

Clyde,


From what I heard on Cable News yesterday, a deal with the creditors (which would happen only if we give up $1 billion a year for 6 years) would save Delta around $900 million, and would push debt payments due from 2005/2006 to 2008. It is kinda like what I do with my credit cards...... Also, JP Morgan (I believe) just upgraded us from underweight to neutral----which may mean something. I still haven't heard anything but "we are still meeting to discuss this." I hope it turns out ok.



Bye Bye--General Lee


J.P. Morgan Securities overnight raised its rating for troubled Delta Air Lines (DAL: news, chart, profile) to neutral from underweight, telling clients it expects the "near-term Chapter 11 probability (is) declining quickly," or down from 85 percent to 30 percent for the airline

 

[SYXDude]

SYXDude,

Delta has flights to MKE don't they? That business flyer doesn't have to be flying to CVG, ATL, or SLC. MANY OF THEM connect through those hubs to cities that Midwest Airlines does go to. They are competitors.

Wouldn't it be funny if 10-20 years from now Midwest Airlines was one of the top 10 airlines in the U.S. Companies grow, and Midwest Airlines will probably grow more than it would have with the help of Skyway's codeshare with Delta. Then Midwest could be one of the airlines that helps put the final nail in the coffin for Delta. Anything is possible.

I also think every airline in the U.S. and even international airlines that fly to the U.S. are competitors of Delta. It's all flying Delta COULD be doing.

Jet

Probability that Midwest will a Top 10 in 10-20 yrs? Slim. You'd have to understand the senior management (actually the CEO's) long-term philosophy. They can't shake their exclusive focus on the business traveler. Midwest was originally created from Kimberly-Clarks flight dept. The CEO stubbornly refuses to give up the Corporate Flight dept mentality. Just do research on the history of Midwest. You'll see.

Do a stock quote search on MEH. They're posting 3rd quarter results today. Unrestricted cash is down to $96.3M from $103.2M ending 2nd quarter this year. Combine that with the insistence their business model will lead to long-term growth, Midwest will probably stay a "boutique" airline.

Do you know what Midwest's 5-year business plan is? Do nothing for five years. Maintain status quo. That's beyond being conservative.

Liitle/no advertising outside the MKE area. Very few flights to the west coast because they don't have enough long-range planes. No service to SEA, PDX, SAN, and only seasonal to SFO. ONE flight a day to LAX, number 2 city in the country. New Orleans service only out MCI and seasonal at that. Refusal to engage in competition. How's this for an example. Midwest refuses to fly to DTW because of NW and the MSP flights are timed to avoid overlap with NW. Companies that are afraid of competition are doomed to fail.

 

[jetflyer]

SYXDude,

Well in the short term Skyway getting the ACA dojets will ATLEAST HELP Midwest Airlines from being doomed to failure like you said. Even if I wish you wouldn't have gotten them, congratulations to all of the Skyway pilots. I think you guys can take a deep breath for now.

Jetflyer

 

[On Your Six]

SYXDude,

Well in the short term Skyway getting the ACA dojets will ATLEAST HELP Midwest Airlines from being doomed to failure like you said. Even if I wish you wouldn't have gotten them, congratulations to all of the Skyway pilots. I think you guys can take a deep breath for now.

Jetflyer

Don't count your chickens before they hatch....

 

[SYXDude]

SYXDude,

Well in the short term Skyway getting the ACA dojets will ATLEAST HELP Midwest Airlines from being doomed to failure like you said. Even if I wish you wouldn't have gotten them, congratulations to all of the Skyway pilots. I think you guys can take a deep breath for now.

Jetflyer

Thanks. Sorry for the rant - it's just very frustrating that Midwest isn't more assertive/aggressive. Opportunities (aside from Delta flying) exist out there for Midwest/Skyway but they aren't being pursued. It appears the current senior management isn't interested in anything beyond what currently exists. I've heard the new CFO is really shaking things up and maybe that'll help.

As for the DoJets, I won't believe they are online until I'm sitting in one calling "Gear Up".

Hope for the best and plan for the worst!

Later