Welcome to Flightinfo.com

  • Register now and join the discussion
  • Friendliest aviation Ccmmunity on the web
  • Modern site for PC's, Phones, Tablets - no 3rd party apps required
  • Ask questions, help others, promote aviation
  • Share the passion for aviation
  • Invite everyone to Flightinfo.com and let's have fun

Delta's troubles ripple with subsidiary Comair

Welcome to Flightinfo.com

  • Register now and join the discussion
  • Modern secure site, no 3rd party apps required
  • Invite your friends
  • Share the passion of aviation
  • Friendliest aviation community on the web


Well-known member
Aug 9, 2003
Sunday, September 18, 2005

Delta's troubles ripple with subsidiary Comair
Tensions with unions may worsen

By James Pilcher
Enquirer staff writer

http://news.enquirer.com/apps/pbcs....0050918&Category=BIZ01&ArtNo=509180332&Ref=ARDelta and Comair flights account for the vast majority handled at the Cincinnati/Northern Kentucky International Airport. In December, the number of Delta flights will be reduced by about 26 percent.

ERLANGER - In the first two days after Delta Air Lines sought bankruptcy protection, more than 110 additional procedural filings were made in the case in New York. Only four additional filings were made regarding Comair, Delta's locally based subsidiary.

The difference in paperwork is not an indication that the Comair case will go more smoothly than Delta's. Far from it, say experts, who point out that the bankruptcy of an economically stable subsidiary of a parent company also in Chapter 11 can be extremely messy.

The experts note that although Comair could be close to breaking even if not actually turning a profit, the way that bankruptcy court works could still mean that the carrier will have to undergo the same painful restructuring as Delta.

Translation: There could be more cuts at the locally-founded carrier, both for total flights locally, as well as for jobs and pay for all workers, possibly creating further union friction at Comair.

Comair employs more than 4,000 locally, operates the most flights at Delta's hub at the Cincinnati/Northern Kentucky International Airport, and already has a history of labor tension.

"There will be all kinds of tensions between Delta creditors and Comair creditors, and that will eventually trickle down to Comair's front lines," says Ron Barliant.

Barliant is a Chicago bankruptcy lawyer who represents U.S. Bank in the United Airlines bankruptcy case.

"The creditors of Comair will have to be careful that the value of Comair isn't sucked back into Delta, and those Delta creditors are looking at the value of Comair for themselves."

Collateral for Delta

Delta bought Comair, the nation's third-largest regional carrier, for $2.3 billion in January 2000.

Experts have said that the local airline was included in the Delta filing to keep it from being seized by Delta creditors as an unencumbered asset. In fact, Comair was part of the collateral used by Delta for the more than $2 billion pre-bankruptcy financing deal that was approved Friday.

Still, Comair turned a net profit in the first half of this year. It posted an operational profit of nearly $69 million for all of 2004, according to financial data filed with the federal government. Last year's net figure exceeded $1 billion in losses, however, because of the Christmas week storm and subsequent shutdown there.

Comair officials would not comment on the bankruptcy proceedings or on its financial data. But previously, they have said the federal figures were unaudited and did not consider costs such as interest or loan payments and other non-operational expenses.

For months, the airline was rumored to be up for sale. But Delta last month sold fellow regional subsidiary Atlantic Southeast Airlines for $450 million to St. George, Utah-based SkyWest.

Earlier this month, Delta announced that it was cutting 26 percent of all its flights locally, including 26 percent of Comair's flights. That will equate into a possible impact on up to 1,000 jobs, including 350 at Comair - most of them locally based.

What happens to rates?

But Comair relies on Delta for all its revenues, because Delta technically pays Comair per hour of flying.

Those rates are set by contracts, and because Delta is now under Chapter 11 protection, the Atlanta-based carrier could argue that it needs to void those deals and set lower rates.

That, in turn, could lead Comair to void its agreements with its unions and other vendors and creditors, since it, too, is in bankruptcy court, says one legal expert.

"It wouldn't be hard for Comair to argue that their survival depended on restructuring its own costs, even though they were profitable or close to profitable heading into bankruptcy," says Jeff Morris, a University of Dayton law professor and recent scholar in residence at the American Bankruptcy Institute.

In a memo to employees released on the day of the bankruptcy announcement, Comair president Fred Buttrell said that the airline needed to become the "low-cost provider of connection feed."

High labor costs

Transforming into that low-cost provider could prove difficult, however - perhaps as difficult as sorting out who has a claim on Comair and Delta's assets.

Comair has the second-highest operating costs among major regional carriers, according to the financial data provided to the government. Worse, its operating profit margins have been gradually shrinking for years.

Many experts and industry analysts note that Comair has some of the highest labor costs in the industry, even though its workers do not make as much as counterparts at Delta.

Comair's pilots are considered the highest paid among the regionals - earning anywhere from $23,000 and almost $110,000 a year - wage rates reached after an 89-day strike in spring 2001.

In addition, Comair may be forced to make other cuts as mandated by parent Delta in whatever restructuring plans that company introduces in its bankruptcy. That process could begin as early as next week.

Earlier this year, Comair got concessions from its pilot and flight attendant unions to either freeze wages or pay new hires lower rates in return for the resumption of new planes and growth.

"We're trying to stay one step ahead of the game as any union is, but in bankruptcy, the company has all the power and that becomes impossible," says Connie Slayback, vice president of Comair's flight attendant union. "All I can say at this point is that we don't want to open the contract again, but I don't expect the company to pull a rabbit out of its hat to keep things the way they are now."

Has its own creditors

Meanwhile, potential legal battles lie ahead in court.

Comair listed 20 unsecured creditors in its filing Wednesday, led by Bombardier Aerospace, makers of all of Comair's regional jet fleet. It is not required to release a list of secured creditors for 15 days after filing.

Those creditors must be satisfied before Delta, Comair's lone shareholder, can take any value from the company, according to Morris.

Yet as the parent company, Delta also could try to get something called "substantive consolidation" approved - a move that would commingle all debtors from the main company and all subsidiaries into one big case.

"It sometimes can get very expensive to try and untie everything and there might be an attempt there to get everyone to take a short haircut and go home with a little something," Morris says. "But that would really put the squeeze on the Comair creditors."

Both cases are being heard as part of the overall Delta filing.

In a statement Friday, Delta said it did not publicly divide its debt with Comair's. It declined comment on its future plans for Comair.

The easiest thing for all creditors would be for Delta to sell Comair outright, says lawyer Barliant, thereby satisfying the Comair creditors and returning the regional carrier to viability. Yet it also could be the toughest thing to do, says Morris, given the current climate for airlines in general - and the fact that Delta would still be in bankruptcy and any contracts for future flying could be in jeopardy.

"One thing is sure, bankruptcy court is unlike any other law - it really can have real life implications for everyone," Morris says.

E-mail [email protected]
Last edited by a moderator:
From the article:
Comair has the second-highest operating costs among major regional carriers, according to the financial data provided to the government.

How did Comair go from the LOWEST cost regional about two years ago, to the 2nd HIGHEST cost regional so quickly? That doesn't make much sense.

jetflyer said:
From the article:

How did Comair go from the LOWEST cost regional about two years ago, to the 2nd HIGHEST cost regional so quickly? That doesn't make much sense.

"according to financial data provided to the government"

Latest resources