DaveGriffin
Registered Self-Abuser
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This WSJ article appears to be a surprisingly accurate assessment. Today's the meeting in ATL. As it stands now there is no clear consensus in the pilot group. Hopefully, after the discussions have had time to run their course, the senior (less militant) guys will prevail as they did in CY2000.
The delay strategy advocated by the militants could be a winner if the recovery continues at its current pace.
HEARD ON THE STREET
Delta Air Lines' Stock is Soaring, But It Needs Savings From Pilots
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
Wednesday 28 May 2003
The end of the war in Iraq and agreements to slash labor costs at the biggest airlines have some investors wondering if the worst is over for the long-suffering sector. The result: a robust rally in beaten-down airline stocks in recent weeks.But in the case of Delta Air Lines, whose shares have doubled since early March, the takeoff could be premature. Unlike its rivals, AMR Corp.'s American Airlines and UAL Corp.'s United Airlines, the nation's No. 1 and No. 2 carriers, Delta has yet to secure big cost savings from its pilots, the company's major unionized group. Indeed, the 9,000 pilots at the third-largest airline still haven't decided whether to reopen their lucrative labor agreement and negotiate with Delta.
Ironically, one of Delta's problems is its financial strength relative to its two biggest rivals. United was in bankruptcy proceedings and American was on the verge of filing for bankruptcy-court protection when the two carriers' pilots and other unions agreed to concessions in April. And while Delta is still suffering from steep losses like its biggest competitors, the airline says it has no plans to file for bankruptcy-court protection.
"I've never seen an airline union decide to take pay cuts unless you're on the verge of bankruptcy, or they have a gun cocked to their head," says Ray Neidl, an analyst at New York research firm Blaylock & Partners LP. Mr. Neidl, who says he holds shares in several airlines including Delta, rates Delta stock a "hold."
Although the company had $1.86 billion in cash and other liquid assets at the end of March, Delta says it can't compete for long with rivals that have significantly lower costs. Delta's management is asking for, among other things, a 26.5% cut in pilots' hourly wages, plus cancellation of a 4.5% pay increase scheduled for next May, which was negotiated during better times in 2000. The company says concessions from the pilots are part of about $2.5 billion in cost savings it hopes to make over the next five years.
The Air Line Pilots Association says that its own financial review of Delta's finances shows that employees will have to shoulder some cost reductions for the carrier to stage a recovery. But a summary of that review, sent to members in mid-May, was hardly an endorsement of the company's line. Indeed, many ALPA members, by far the best paid in the industry, are reluctant to give Delta the steep cost cuts that it says it needs, especially if the sector's conditions are improving.
The pilots' union is taking the issues to members at eight pilot bases around the country, with the biggest meeting -- in Delta's hometown of Atlanta -- set for Wednesday. After listening to the members, the union's executives are expected to decide early next month whether to open negotiations with the company on wage and other money-saving concessions.
Meetings have been well attended, according to some members, with many pilots voicing their misgivings about drastic pay cuts. "If they want concessions, then they're going to make some concessions to us, too," says Charlie Gilman, a first officer who has flown for Delta for seven years. "I want whatever we give up to be considered an investment in the company.
"Delta's current stock price seems to assume pay cuts are a done deal, or at least that the bad news for the company is over. In a research note to investors last week, Susan Donofrio, an analyst with Deutsche Bank Securities Inc., reiterated her "buy" recommendation on Delta and other top carriers, saying, "As almost all that could go wrong with this industry has happened (with the exception of a labor strike), we anticipate brighter skies as we move forward...." Deutsche Bank owns Delta shares and says it expects to seek investment-banking business from the company in the next three months.
Normally, airline stocks, like those in many other sectors, would be judged cheap or expensive on the basis of earnings, but the industry has suffered quarter after quarter of huge losses, with more expected this year. Delta shares do appear relatively expensive given the company's book value, equal to assets minus liabilities. At the end of the first quarter, Delta reported total debt of $11.29 billion and shareholders equity of just $505 million, making debt about 96% of total capital. In other words, Delta shares trade at about 3.3 times the company's book value, closer to the company's highest price-to-book-value ratio of the past five years of 5.3 than the five-year low of 0.65, and above an industry average of about 2.3. The shares were up 48 cents, or 3.5%, at $14.03 in 4 p.m. New York Stock Exchange composite trading.
Many industry experts believe that the company has a strong argument for significant wage cuts and other concessions -- namely, that it can't remain a top carrier with a labor-cost structure far above that of its rivals. At Delta, pilot pay ranges from $45,000 a year for new pilots to more than $250,000 for a small group of 30-year veteran captains, according to the pilots union. Pay rates vary widely depending on type of aircraft and a pilot's years of experience. Delta pays a 12-year Boeing 757 captain $244.97 an hour. After the recent concessions at other airlines, the same pilot would earn $169.79 an hour at United and $149.68 at American.
Delta says its pilot pay and benefits cost $2.2 billion a year, or just over 16% of total operating costs. American's pilot pay and benefits totaled about $2.5 billion last year, or about 12% of total AMR operating costs of $20.6 billion for 2002. The figures don't take into account a 4.5% raise Delta pilots got this month or the 23% pay cut American pilots took May 1.
In a memo to pilots in March titled "enlightened self-interest," Joseph C. Kolshak, Delta's senior vice president, flight operations, warned: "As pilots, you and I currently enjoy more than a 20% advantage over the industry average for network carriers, even before all of their concessions have taken effect. This is simply not sustainable.
"Delta management says it is coming to the pilots for concessions only after wringing some $1.5 billion in cost savings in other parts of the carrier's sprawling operations. The savings have come from layoffs and early retirement of thousands of employees, reductions in aircraft fleet and routes, and increased productivity in maintenance operations. And the company says that even if it gets the pilot-pay reductions it needs, it will be back again to ask for work-rules changes that could boost efficiency.Recent signals of improved bookings and a modest boost in air travel with the spring and summer travel season might prompt some pilots to believe that, if they stall on granting concessions, perhaps Delta won't need them in the end. But Delta officials say: Think again.
"We've seen preliminary signs of a moderate recovery but nothing that suggests that the champagne should come out of the cellar," says Frederick Reid, Delta's president and chief operating officer. "I would be very cautious about any conclusion that a significant recovery is at hand.
"Write to Evan Perez at [email protected]1
URL for this article:http://online.wsj.com/article/0,,SB105407330540698200,00.html
The delay strategy advocated by the militants could be a winner if the recovery continues at its current pace.
HEARD ON THE STREET
Delta Air Lines' Stock is Soaring, But It Needs Savings From Pilots
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
Wednesday 28 May 2003
The end of the war in Iraq and agreements to slash labor costs at the biggest airlines have some investors wondering if the worst is over for the long-suffering sector. The result: a robust rally in beaten-down airline stocks in recent weeks.But in the case of Delta Air Lines, whose shares have doubled since early March, the takeoff could be premature. Unlike its rivals, AMR Corp.'s American Airlines and UAL Corp.'s United Airlines, the nation's No. 1 and No. 2 carriers, Delta has yet to secure big cost savings from its pilots, the company's major unionized group. Indeed, the 9,000 pilots at the third-largest airline still haven't decided whether to reopen their lucrative labor agreement and negotiate with Delta.
Ironically, one of Delta's problems is its financial strength relative to its two biggest rivals. United was in bankruptcy proceedings and American was on the verge of filing for bankruptcy-court protection when the two carriers' pilots and other unions agreed to concessions in April. And while Delta is still suffering from steep losses like its biggest competitors, the airline says it has no plans to file for bankruptcy-court protection.
"I've never seen an airline union decide to take pay cuts unless you're on the verge of bankruptcy, or they have a gun cocked to their head," says Ray Neidl, an analyst at New York research firm Blaylock & Partners LP. Mr. Neidl, who says he holds shares in several airlines including Delta, rates Delta stock a "hold."
Although the company had $1.86 billion in cash and other liquid assets at the end of March, Delta says it can't compete for long with rivals that have significantly lower costs. Delta's management is asking for, among other things, a 26.5% cut in pilots' hourly wages, plus cancellation of a 4.5% pay increase scheduled for next May, which was negotiated during better times in 2000. The company says concessions from the pilots are part of about $2.5 billion in cost savings it hopes to make over the next five years.
The Air Line Pilots Association says that its own financial review of Delta's finances shows that employees will have to shoulder some cost reductions for the carrier to stage a recovery. But a summary of that review, sent to members in mid-May, was hardly an endorsement of the company's line. Indeed, many ALPA members, by far the best paid in the industry, are reluctant to give Delta the steep cost cuts that it says it needs, especially if the sector's conditions are improving.
The pilots' union is taking the issues to members at eight pilot bases around the country, with the biggest meeting -- in Delta's hometown of Atlanta -- set for Wednesday. After listening to the members, the union's executives are expected to decide early next month whether to open negotiations with the company on wage and other money-saving concessions.
Meetings have been well attended, according to some members, with many pilots voicing their misgivings about drastic pay cuts. "If they want concessions, then they're going to make some concessions to us, too," says Charlie Gilman, a first officer who has flown for Delta for seven years. "I want whatever we give up to be considered an investment in the company.
"Delta's current stock price seems to assume pay cuts are a done deal, or at least that the bad news for the company is over. In a research note to investors last week, Susan Donofrio, an analyst with Deutsche Bank Securities Inc., reiterated her "buy" recommendation on Delta and other top carriers, saying, "As almost all that could go wrong with this industry has happened (with the exception of a labor strike), we anticipate brighter skies as we move forward...." Deutsche Bank owns Delta shares and says it expects to seek investment-banking business from the company in the next three months.
Normally, airline stocks, like those in many other sectors, would be judged cheap or expensive on the basis of earnings, but the industry has suffered quarter after quarter of huge losses, with more expected this year. Delta shares do appear relatively expensive given the company's book value, equal to assets minus liabilities. At the end of the first quarter, Delta reported total debt of $11.29 billion and shareholders equity of just $505 million, making debt about 96% of total capital. In other words, Delta shares trade at about 3.3 times the company's book value, closer to the company's highest price-to-book-value ratio of the past five years of 5.3 than the five-year low of 0.65, and above an industry average of about 2.3. The shares were up 48 cents, or 3.5%, at $14.03 in 4 p.m. New York Stock Exchange composite trading.
Many industry experts believe that the company has a strong argument for significant wage cuts and other concessions -- namely, that it can't remain a top carrier with a labor-cost structure far above that of its rivals. At Delta, pilot pay ranges from $45,000 a year for new pilots to more than $250,000 for a small group of 30-year veteran captains, according to the pilots union. Pay rates vary widely depending on type of aircraft and a pilot's years of experience. Delta pays a 12-year Boeing 757 captain $244.97 an hour. After the recent concessions at other airlines, the same pilot would earn $169.79 an hour at United and $149.68 at American.
Delta says its pilot pay and benefits cost $2.2 billion a year, or just over 16% of total operating costs. American's pilot pay and benefits totaled about $2.5 billion last year, or about 12% of total AMR operating costs of $20.6 billion for 2002. The figures don't take into account a 4.5% raise Delta pilots got this month or the 23% pay cut American pilots took May 1.
In a memo to pilots in March titled "enlightened self-interest," Joseph C. Kolshak, Delta's senior vice president, flight operations, warned: "As pilots, you and I currently enjoy more than a 20% advantage over the industry average for network carriers, even before all of their concessions have taken effect. This is simply not sustainable.
"Delta management says it is coming to the pilots for concessions only after wringing some $1.5 billion in cost savings in other parts of the carrier's sprawling operations. The savings have come from layoffs and early retirement of thousands of employees, reductions in aircraft fleet and routes, and increased productivity in maintenance operations. And the company says that even if it gets the pilot-pay reductions it needs, it will be back again to ask for work-rules changes that could boost efficiency.Recent signals of improved bookings and a modest boost in air travel with the spring and summer travel season might prompt some pilots to believe that, if they stall on granting concessions, perhaps Delta won't need them in the end. But Delta officials say: Think again.
"We've seen preliminary signs of a moderate recovery but nothing that suggests that the champagne should come out of the cellar," says Frederick Reid, Delta's president and chief operating officer. "I would be very cautious about any conclusion that a significant recovery is at hand.
"Write to Evan Perez at [email protected]1
URL for this article:http://online.wsj.com/article/0,,SB105407330540698200,00.html
