Delta news

[flaps30]

Delta Air cash-flow warning hits stock
By August Cole, CBS.MarketWatch.com
Last Update: 10:29 AM ET March 11, 2003

ATLANTA (CBS.MW) -- Delta Air Lines fell 17 percent Tuesday after disclosing that that "geopolitical uncertainties" have hurt the company's March quarter, and will result in negative cash flow and reduced capacity for period.

Delta Air falls after cash-flow warning
Delta warning, AMR jitters depress airlines

In recent action, Delta (DAL: news, chart, profile) fell $1.55 to $7.11 as the airline sector sank. See Airline Stocks.

Cash flow had been expected to be slightly positive, Delta said in a statement included in an SEC filing announcing the disclosure. Capacity is likely to fall 1.5 percent in the March quarter, though expectations had been for an increase of 0.5 percent to 1 percent.

Delta is expected to lose $3.12 a share in the quarter, according to Multex.

The airline also said it has raised its fuel hedging for 2003 to 60 percent, at 77 cents, up from a 50 percent hedge in January.

In the current quarter, which has seen aviation fuel prices steadily increase, the company is hedged at 77 percent with a per-gallon price of 79 cents. Looking to the second quarter, Delta is 78 percent hedged at 76 cents a gallon.

According to Deutsche Bank, aviation fuel was as high as $1.30 a gallon last week - a 113 percent increase.

Associated Press
Delta to Lose Money in 1st Quarter
Tuesday March 11, 12:15 am ET
Delta Expects to Lose Money in First Quarter Due to Worries Over War With Iraq


ATLANTA (AP) -- Delta Air Lines expects negative cash flow from operations this quarter due to concern over potential war with Iraq, the airline said Monday.
The nation's third-largest airline did not give an estimate of its anticipated loss. Analysts surveyed by Thomson First Call expect the company to lose $3.04 per share.

Delta said it expects to fill 1.5 percent fewer seats than during the first quarter of 2002, instead of a 0.5 percent to 1 percent increase.

"Bookings for the quarter are down, and we expect this to continue," said M. Michele Burns, Delta's chief financial officer. "Changes to capacity and additional fuel hedging agreements continue to help us manage through these difficult times. Delta remains committed to aggressively reducing costs and maintaining the flexibility to quickly adjust to changing market demand."

Atlanta-based Delta announced additional fixed-price fuel contracts, ensuring costs for about 60 percent of its estimated 2003 requirements at an average price of 77 cents per gallon. In January, the airline said it had hedged half its expected fuel needs for 2003 at an average price of 75 cents per gallon.

In January, the airline said cash flow from operations was expected to be slightly positive for the quarter.

Delta shares were down 22 cents Monday at $8.66 on the New York Stock Exchange

 

[General Lee]

Did anyone think that Delta would make money during a war? This is obvious. Every airline will lose passenger bookings during a time of conflict. The key news here is that we actually have hedged MORE fuel at better prices. We are now up to 77% at 79 cents for this quarter, and 78% at 78 cents for the 2nd quarter---which will shield us from some of the high costs. I believe the current cost is near $1.30 per gallon---and UAL and USAir have to pay the full price. Even American only hedges about 40% of their fuel. Only Southwest hedges better than Delta---at 85% of their fuel hedged at $23 a barrel I beleive. Let's hope for a quick war.


Bye Bye---General Lee

 

[rjcap]

Did anyone think that Delta would make money during a war? This is obvious

Gen Lee,

You sure did switch your tune pretty fast. I recall your recent posts touting the positive cash flows from operations but all of a sudden its "obvious" that those same cash flows will be negative.

 

[dhampton]

Gen Lee,

SWA is hedged 100% for 2003 and 80% for 2004.

WSJ article from yesterday to follow.
----------------------




U.S. Airlines Show Disparity
In Hedging for Jet-Fuel Costs

By MELANIE TROTTMAN
Staff Reporter of THE WALL STREET JOURNAL


Jet fuel, now more than twice as expensive as a year ago, is emerging as a major factor in survival and bankruptcy for airlines, as several carriers, including some of the weakest, find themselves with few protective price hedges in place.

Airlines typically hedge by locking in fuel at prearranged prices or buying securities that rise in value when oil climbs. Yet the industry finds itself with wide disparity in hedging, with some airlines fully hedged at low prices, and others completely exposed to huge price increases.

UAL Corp.'s United Airlines, operating under bankruptcy-court protection, has no hedges in place this year. That will likely cost the nation's second-largest airline more than $100 million in added fuel costs during the current quarter alone, estimates UBS Warburg analyst Samuel Buttrick. Analysts suspect US Airways Group Inc., also reorganizing in bankruptcy, has few hedges in place. US Air says it is hedged for 2003, but it wouldn't disclose prices or percentages.

By contrast, Southwest Airlines, the only profitable major carrier, hedged 100% of its jet-fuel needs for the current quarter at prices that are the equivalent of $23 a barrel for crude oil, compared with recent crude-oil prices hovering around $36 a barrel. Southwest has lined up more than 75% of its fuel for the rest of this year and next at $23 a barrel for crude oil.

Northwest Airlines is well-hedged with 100% of its fuel needs for the current quarter priced at the equivalent of $23 to $31 a barrel of crude oil, according to Deutsche Bank Securities Inc. Continental Airlines has 95% of its fuel for the quarter hedged at $33 a barrel, Delta Air Lines has 66% hedged at $26 a barrel, America West Airlines has 63% hedged at $24 to $31 a barrel, and AMR Corp.'s American Airlines has 40% hedged at $23 a barrel, Deutsche Bank says.

On average, U.S. carriers have hedged about one-third of their jet-fuel needs for the current quarter, estimates David Swierenga, chief economist for the Air Transport Association, a trade group for U.S. carriers.

United says bankruptcy hurt it in the hedging game. The carrier had some hedges in place at the time of its bankruptcy filing in December, but the filing put the airline in default of those hedges so they had to be liquidated. United said it filed a motion with the bankruptcy court that permitted it to hedge going forward, but by that time, prices had risen. "Given the volatility of fuel prices right now, it just didn't make any sense for us to do that," United spokesman Rich Nelson said.

HEDGING THEIR BETS



Prearranged crude-oil prices in place at U.S. airlines in the first quarter of 2003

Airline Hedges (dollars per barrel)
Southwest 100%, most at $23 a barrel
Northwest 100%, from $23-$31 a barrel
Continental 95% at $33 a barrel
Delta 66% at $26 a barrel
America West 63% at $24-$31 a barrel
American 40% at $23 a barrel
US Airways hedged, undisclosed amounts
United none

Sources: Deutsche Bank Securities; US Airways statement from the company



Good credit, on the other hand, helps Southwest because many hedges revolve around futures contracts, and those on the other side of the contract may be gambling on the credit of the airline. "If you're not a good credit then you may not be able to find a counterparty who's willing to enter into a hedging contract with you," Southwest's chief financial officer, Gary Kelly, says. "There is a situation where you would owe the counterparty money."

Mr. Kelly's strategy at Southwest is to start early and build positions when prices look attractive. He began buying hedges for 2003 fuel needs more than a year ago, in part because of concerns about the situation in the Middle East. Southwest had hedged 80% of its fuel needs for the first quarter of this year by this past December. When political trouble flared that month in Venezuela, the airline decided to hedge all of its remaining fuel needs for the quarter.

Concern about the Middle East has prompted Southwest to hedge far into the future, as well. In addition to being hedged on 80% of the airline's fuel needs for 2004, Southwest has 32% of its needs for 2005 hedged, and 5% to 15% of its needs beyond that all the way out to 2008.

"They're modest positions, but the point is we start early, we build our position," Mr. Kelly said.

Fuel is the second-largest expense for airlines after labor, and the huge increase in price, a result of higher crude-oil prices, will likely cost the industry, which is grappling with depressed revenue and massive financial losses, several billion dollars this year.

A one-cent increase in the price of jet fuel costs the U.S. airline industry $180 million, based on 18 billion gallons of jet fuel purchased a year, Mr. Swierenga of the ATA said. Jet-fuel spot prices in New York have run up to $1.30 a gallon recently, compared with 61 cents a gallon a year ago.

Hedging can be a tricky business, and costly to an airline if fuel buyers guess wrong. There is no futures market for jet fuel, but airlines can buy contracts that lock in set prices of crude and heating oil, whose price moves most closely in line with that of jet fuel.

Write to Melanie Trottman at [email protected]2

 

[46Driver]

For all of those out there waiting in breathless suspense, it took General Lee an entire 1 hour and 11 minutes to make his "Delta is hedging fuel" answer. I am sure we can get a quicker response on a 70 seat thread....

 

[Daedalus]

Shareholder Equity Negative

With Delta's confession that cash flows will be negative this will finally put their shareholder equity to less than zero. This is what is driving DAL's stock price down into the dumps today.

If things continue (and there is no reason to believe otherwise) it looks like Delta will be lining up on final for a bankruptcy filing along with every other legacy carrier. Even a relatively strong DAL can only take so much punishment from the industry train wreck we are all witnessing.

 

[General Lee]

Dhampton,

That WSJ article is already out dated----our CFO stated that we now hedge 77% (not 66% or whatever) of our fuel at 79 cents---and next quarter at 78% aat 78 cents. This may not be as good as Southwest, but it is a lot better than everyone else.

46driver,

1 hour and 11 min, huh? Thanks for paying attention. You are right about the 70 seater threads. It will be great when we get them.

Daedalus,
Negative cash flows? Everyone has had negative cash flows (except Southwest and maybe Jetblue) lately. We actually had an operating profit last quarter of $177 million, but it turned out to be a loss due to the fact that they parked the 727's, etc. Can anyone expect to have a positive cash flow quarter during this war? Even Southwest said it might be hurt by this war. Oh no! That must mean that Southwest is also lining up for Bankruptcy----sell your stocks now! Here you go again with the Cap 11 talk. Delta announced something that was darn obvious---that we probably won't have a lot of advanced bookings during a war. But wait, Spring break will be going on through out this short war (hopefully)--and we will carry more people to Florida etc. during Spring break than anyone else. If we are hurting, everyone else will be digging their own graves. Keep trying to bash us, it is funny how Leo Mullin hasn't asked any other employee group for any pay cuts---and that is over 50,000 employees. (18,000 Flt attend, 10,000 mechanics, etc.) Yes, our stock price went down on some bad news. As soon as it looks like we will win this war (probably after 4-5 days of intense bombing)---stocks will rise and oil prices will fall. Then our stock goes up, and everyone including yourself, will say, "Oh my God, Delta will be bigger than GM!!!!" Get a grip buddy!

Bye Bye---General Lee

 

[HAZ-MAT]

My father is a "red coat" for Delta, and over the past 2 weeks, all his outbound CVG,ATL, and MCO flights have gone out full... He's been giving out DL Voutchers because they're overbooked, pretty much he's giving out $1500-2000 during his shift, because flights are overbooked... yes this is due to Spring Break but feb/mar are normally good months for Delta as bookings go... Hell I've even been trying to Nonrev home to see them for the past 2 weekends and i cant with flights being oversold by 5 or more... Anyways i know that they're spring breakers, and probably got their ticket for a Song (hehe). So my thoughts on the whole situation is due to the fuel prices, and trying to be competitive with LCC's, this is partly why they have a flesh wound. However, thru my father and what i've heard about Delta's plans for the future are, they do have a plan, and right now, with all the uncertanty, i plan is all you can have... so we'll just have to wait and see what happens.

 

[Heavy Set]

46driver,

Nice attitude. Perhaps he was checking his facts. At least he brings facts and specifics to the table... What was your contribution to this thread? Nada.

I'd be surprised if any airline besides Southwest eeks out a profit during this quarter... Comair won't be immune to the downturn - your traffic will suffer as well.

Expect Delta to give the pilots a few concessions in return for wage cuts - look for CRJ-700s and 900s on the property and Delta pilots flying them (including furloughees).

 

[skiddriver]

46driver,

... Comair won't be immune to the downturn - your traffic will suffer as well.

Read his profile. He doesn't fly for Comair.

He does fly for his country however, in his copious spare time.