Delta pulls a fast one

[General Lee]

Joe,

Ty and I often argue about Airtran vs Delta, and if you have been a longtime member of this board, you would know that. But, at the end of the day we know that it is just "aviation jousting", and we would still shake hands if we ever met in the C concourse in ATL. Maybe we will someday. But, you are right about our Loquaciousness---or our ability to "talk"---or "write" on this board. We both have strong opinions, and I for one welcome anybodies opinion. I don't like it when people "slam" each other, but sometimes that happens. I research all of the boards on my days off (and I do other things too), and I am interested in what is happening to Delta and the other airlines. I like hearing inside info, and sometimes I get it here. Please don't ruin my fun. I enjoy this. Can't some people have fun doing things that others consider boring etc? I actually have a life outside of this, and a wife that loves me. Let me have fun with the computer. Thank you.

Bye Bye--General Lee

 

[Joe Peeoznotz]

Mr. Lee

Back at you. I have no conflict with you

Ty and I have had a running verbal debate, but that's because he chose to make it personal.

 

[General Lee]

Good. I have none with you either. Ty is a hard one to understand sometimes, but I think he is just defending his airline. Hey, he is in a lucky spot, just like you. Job security is great. We have 1060 that don't feel that way. I feel lucky to not be one of them, and that is why I always try to help their cause. Let's hope we all have good jobs in the future.

Bye Bye--General Lee

 

[FDJ2]

Playing hardball with a management team that is more than willing to take this so called "negotiation" to Chapt 11, is at best short sighted. They will just let the losses keep rolling in and go directly to 11.

Lowecur are you insinuating that DAL management would intentionally go into chapter 11 in order to get some negotiating leverage? You've got to be kidding. Management has a fiduciary responsibility to the shareholders, going into chapter 11 would accomplish two things for sure; one eviscerate shareholder value and two allow third parties to take control of the company. What's not for sure going into chapter 11, is what the courts will or will not do. That seems like a pretty dumb move by a mangement team that needs to deal with a labor force that is over 82% non union. Pilot costs are a factor, but the business model does not revolve around pilot costs. Any management team that would intentionally drive a publically owned company into chapter 11 just to hopefully gain some leverage over less then 18% of its workforce would soon find itself in court as every institutional and non institutional investor files suit.

 

[Astra Guy]

General and Ty,

I am a new guy on this site. I have enjoyed, in almost all cases, the posts you guys have made. I too am an aviation fan and therefore want to learn as much about this business as possible.

There is nothing wrong with jabbing one another with some actual bona fide info. When it gets personal, well that is another matter.

Opinions are like noses, and some other parts of the body, as in everyone has one. Since almost all are here to gain info and yes, even some opinions from the inside, we all should be more knowledgeable as a result. The attacks do nothing to add to the info.

I am happy for both of you that you have loyalty to your companies. Most should be so lucky...to have that feeling.

I hope to become more educated as time goes by and the info here helps mee that end. Keep posting guys. If nothing else it can show your true colors. Now General, how about a full can of coke next time I fly?

 

[lowecur]

FDJ2

Lowecur are you insinuating that DAL management would intentionally go into chapter 11 in order to get some negotiating leverage? You've got to be kidding. Management has a fiduciary responsibility to the shareholders, going into chapter 11 would accomplish two things for sure; one eviscerate shareholder value and two allow third parties to take control of the company. What's not for sure going into chapter 11, is what the courts will or will not do. That seems like a pretty dumb move by a mangement team that needs to deal with a labor force that is over 82% non union. Pilot costs are a factor, but the business model does not revolve around pilot costs. Any management team that would intentionally drive a publically owned company into chapter 11 just to hopefully gain some leverage over less then 18% of its workforce would soon find itself in court as every institutional and non institutional investor files suit.

First, let me clarify my statement. Chapter 11 would be a last alternative, but it will be an alternative down the road. Institutional & savy private investors will be long gone before the company files for chapt 11. If no agreement is reached in the next month or so, you will see a slow exit for the doors. The stock price will slowly work it's way down to a level that whoever is left will not care about the chapt 11 decision. Your new CEO just stated something to the effect that he will not sacrafice the long term well being of the company, for a negative short term contract with the pilots. My guess is that unless DALPA wakes up, DL will begin to furlough pilots again at some point towards the end of this year.

 

[BoilerUP]

Lowecur,

You seem to have alot of answers when it comes to the dollars and cents of this industry...whether any of those answers are correct or not remain to be seen.

May I ask: what is your profession? Are you a pilot, a stock broker, analyst.....?

Curious what information you base your opinions on.

 

[FDJ2]

Re: FDJ2

My guess is that unless DALPA wakes up, DL will begin to furlough pilots again at some point towards the end of this year.

Unless there is another force majuere event this year, DAL will be unable to furlough anymore pilots than the 1060 currently on the streets.

Thanks for your clarification on the other points. Certainly DAL needs to be profitable in the long term. According to the DAL webcast, DAL enjoys a $600M/year employee cost advantage over other majors from the nearly 85% of employees who are non union. That's a figure that is not often seen. Will pilot concessions save DAL from Chapter 11, probably not. If DAL is going into Chapter 11 with a workforce that is nearly 85% non unionized, certainly the other 15% could only delay the inevitable. I think that reasonable pilot concession in the form of an investment might help the situation. Pilot costs are about $1.6B/year. DAL says they want about a 30% concession, or approximately $480M/year. The Delta pilots have offered 13.5%, or approximately $216M/year. I don't see that $286M differential as a make or break deal for the company, particularly when they have $2.9B in cash. IOW, DAL will not be saved or go into chapter 11 based on that number. DAL will either sink or swim based on its business model. To be fair, these are rough estimates. Both the company and the pilots have been costing out each others proposals. But time is limited on these negotiations. Just my guess, but if there is not a TA by February, there will be no mid contract concessions in 2004 and we'll start section six negotiations this fall. As far as going Chapter 11, I don't think that's in the cards this year. All the trend lines are moving up, we are still cash flow positive from operations and we have $2.9B in cash. JMO, but DAL ought to take the $216M in savings, because the extra $286M they want won't make a difference.

 

[lowecur]

FDJ2

Unless there is another force majuere event this year, DAL will be unable to furlough anymore pilots than the 1060 currently on the streets.

The one thing I believe that may happen is the addition of 8-10% capacity in an already bloated system. It sounds great, and correct me if I'm wrong, but that would have to include pilot recalls.

In regards to the rest of your reply, I think you are still talking today from a position of relative strength. You do have alot of cash, but the $2.9M is nothing more than a partial disbursement of 15% on a home equity loan of $20.B. Call it bad management, bad luck, or bad business model, the loan needs to be paid back. Oh, and where do you think interest rates are headed? Have your financial guru's told you how much each increased pt in interest will affect the bottom line? It would scare you.

Your solution if I understand you correctly, is to offer a payroll credit of 13% ( A 17 pt difference from whatever the payroll happens to be at any particular time in the future). This coupled with the improving economy and the gradual changes in the DL business model, should save the company over the next 5 years, if it is indeed salvagable. If it's not, hey what the heck, you did your part.

Let me give you some supposition. Your contract expires next year without reaching a new agreement. You will in all likelyhood continue working at the same payroll. The company may or may not decide to start furloughing depending how the economy is doing. While all this nonsense is taking place, most of the legacy's will be making the proper changes outlined in their longterm strategic planning sessions, which may or may not be enough to insure their long term survival. AMR already has their cost structure in place, and they are still forecast to lose $170M this Q ($16B debt is part of their mortgaged future). Grinstein said the LCC's headed by Jetblue will be offering a new challenge with their 100 seat a/c. Yes, he even mentioned the possibility of WN looking into them. Add to that the incursion of Branson, and the newest LCC startup - Independent Air, and you have a very formidable mountain to climb - using one arm, and no cushion to fall back on. You'll look back someday if this comes to fruition, and wish DALPA had more foresight....."as Rome burns..Nero fiddles."

I wish you all the luck in the world, you're going to need it.

 

[lowecur]

boilerUP

Lowecur,

You seem to have alot of answers when it comes to the dollars and cents of this industry...whether any of those answers are correct or not remain to be seen.

May I ask: what is your profession? Are you a pilot, a stock broker, analyst.....?

Curious what information you base your opinions on.

It is well known amongst the SWA parrots that I am a "clown" aka an amateur airline analyst, who is also a semi retired insurance exec.

My knowledge is just a luv of the airline business, which I have followed since I was a kid - a half century ago. My opinions are speculation to stimulate conversation, based on my continued interest in this business.

Thanks for asking. I must tell you that I will be rooting for the Wolverines next year, as my nephew played high school football with newly recruited RB Mike Hart (he broke all the national records for high school RB's this year). In his High School career he won 3 state titles, rushed for 11,045 yds, scored 204 TDs, had 47, 100+yd games, and rushed for 392 yds & 6 TD's in the finals this year. He's unbeliebable!!!!!!!

 

[FDJ2]

Lowecur, I appreciate what you are saying, but don't get me wrong, I don't think the current situation is great, but I don't think it is as much doom and gloom as some would have us believe. We have a pretty sharp economic financial analysis team watching all these developments and there is no need to panic and give away the store.

As far as DAL increasing domestic capacity 8-10% (international capacity I believe will increase 13%) next year, I think much of that will probably be done by increasing the gauge on certain routes. IOW, replacing an 88 with a 757, or an RJ with an 88. By increasing the gauge they might get away with not recalling some of the furloughed pilots, since it takes just as many pilots to fly a 767 as it does to fly an 88. The increased gauge raises the segment cost of the flight but it decreases the CASM. DAL expects to realize a savings in the cost of operations (CASM) of approximately 5% by the end of 2004 with the increase in capacity. With a $14B annual operating cost, a 5% savings could equal $700M in savings, which is roughly equal to our losses of this year, losses which included approximately $1.4B in depreciation and asset writedowns. I believe our EBITDA will come out to over $800M in 2003.


Just for the record, when our contract becomes amendable on May 1, 2005, barring any mid contract agreement, it will not expire. Under the Railway Labor Act, our contract can only becomes amendable on that date and it will remain in place until we either reach and ratify a new PWA, or we are released for self help by the National Mediation Board. Under the RLA airline contracts can easily take two or more years to negotiate. Lately, it's taken longer.

Thanks for the good wishes.