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DL bankruptcy still likely

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lowecur

Well-known member
Joined
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As the stock price continues to climb, DL officials warned yesterday that BK is still a possibility. High fuel prices are the main culprit, but any glitches in the two loans from American Express or GE could also trigger a Chapt 11.

Although not discussed here, it should be noted that the PBGC increased it's fiscal year deficit on 9/30/04 to $23.3B. Most of this is due to the projected $8.5B bailout of UAL and UAIR, that must be included in the $23.3B. Trying to determine what will cause less distress to the taxpayers is difficult: Bailing out the airlines with the PBGC will certainly include DL and AMR as they will definitely file Chapt 11 in order to get rid of their pensions, which in turn will help their ability to compete. This precident will then allow other companies in other industrys to also file Chapt 11, thus ballooning the PBGC to a catastrophic record deficit. The other alternative is to just refuse UAL and UAIR the right to jettison their pensions. This move would probably lead to liquidation of UAL, and put 70,000 employees on the street in 2005. UAIR may survive, and AMR and DL would probably get a short term infusion of badly needed profits as capacity shrinks. The ability of these remaining legacys to continue to morph toward the LCC's will eventually determine their fate.

Bankruptcy still possible at Delta [font=arial,helvetica]
[font=ARIAL,HELVETICA][font=arial,helvetica]
By Alexander Coolidge
Post staff reporter

Even after squeezing $1 billion in annual savings from its pilots union, Delta Air Lines said Monday it can't rule out bankruptcy if fuel prices don't drop or if recent loan deals fall through.


Management at Cincinnati's dominant carrier said their turnaround plan counts on oil prices falling to $40 a barrel in 2005 and $35 in 2006. However, if prices remain at their current level -- about $50 per barrel -- the company will need to raise another $600 million next year and $900 million in 2006 to keep operating.

The company said it might not be able to raise the additional money, which would force a bankruptcy filing.

Delta also warned in a government filing Monday that even if it meets its goal of saving $5 billion a year by 2006, it could still be forced into bankruptcy.

"Even if we achieve all of the approximately $5 billion in annual benefits we are targeting, since our industry has been subject to progressively increasing competitive pressure, we may need even greater cost savings," the company said. "We cannot assure you that these anticipated benefits will be achieved or that if they are achieved that they will be adequate for us to maintain financial viability."

Delta, which employs 8,000 in Greater Cincinnati, has lost almost $6.3 billion since the end of 2000.

While business partners American Express and General Electric have offered Delta more than $1 billion in loans in the coming months, the Atlanta-based airline said any potential snag with the financing could also prompt it to file Chapter 11.

"The foregoing initiatives are part of our intensive effort to effect a successful out-of-court restructuring, but there can be no assurance this effort will succeed," the company said.

Delta officials identified high fuel prices and a relentlessly competitive environment as the major stumbling blocks that could still trip up the company. With expenditures at more than $2 billion, the airline spent more on fuel in the first three quarters of 2004 than it did in all of 2003.

Last week, Delta won a major battle when its pilots union ratified a five-year contract that cut their annual pay by almost a third and slashed other benefits. The pilot cuts were part of a plan Delta executives outlined this fall to slash $5 billion worth of annual costs by 2006. Among other cuts: up to 7,000 jobs the next 18 months; the elimination of Dallas/Fort Worth as a hub by Jan. 31; and a 10-percent pay cut and benefit reductions for employees starting Jan. 1.


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I think you'll see the price of oil continue to drop down to about $38-$40/barrel within the next 3 months. That is going to make a huge difference to the airlines, and I think it will be a big help to DAL. I don't see any reason to be worried about the loans from AMEX and GECAP, and those should keep DAL out of Ch 11 for a good while in and of themselves. BK is still a possiblity, but certainly not imminent like it was.
 
PCL_128 said:
I think you'll see the price of oil continue to drop down to about $38-$40/barrel within the next 3 months. That is going to make a huge difference to the airlines, and I think it will be a big help to DAL. I don't see any reason to be worried about the loans from AMEX and GECAP, and those should keep DAL out of Ch 11 for a good while in and of themselves. BK is still a possiblity, but certainly not imminent like it was.
With the PBGC already reserving for UAL and UAIR in their Sept 30th filing, they are anticipating the judges allowing the carriers to jettison their pensions. This will probably happen in the next 90 days, and you can bet that DL will file Chapt 11 shortly thereafter. DL will need to get in under the wire, as Congress is looking at pension reforms.
 
Pilot pay has never saved any airline from bankrupcy. I would never voluntarily agree to have my pay cut. When it comes down to it being forced by the courts well then so be it. Max pay till the last day!
 
I think Delta continues to play that line to make sure that the creditors listen. They still want help on that side, and just because the pilots caved and gave a large amount to savings, that doesn't mean we still don't need help on that side. I don't think Grinstein will come out and say "Hey, everything is great now, the rest of you don't have to participate." We have worked on our short term debt and the financing with GE and AMEX will help with short term liquidity. Our long term debt and mid term debt is the current focus. But, oil prices have dropped a lot in the last two weeks, and if it does go below $40 a barrel, Continental will be caught because they hedged a certain amount at $40. Time will tell, but Sleepy and the others were CERTAIN that we were going to file two weeks ago. I think we have "bought" ourselves some more time to try to figure this out. Those pesky creditors will haved to be "worked on" some more by Grinstein and Co. Here is an article about Grinstein:




By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 11/15/04


Gerald Grinstein emerged from Delta Air Lines' brush with bankruptcy predicting more challenges but also brighter days.

"As [Winston] Churchill said, there's nothing more exhilarating in life than to be shot at and missed," Grinstein told an Atlanta business group Monday. "We're going to go through some more of a difficult period, but we are still dodging those bullets."

It was his first public appearance since Delta labored almost around the clock in recent weeks with its pilots union and creditors to cobble together a rescue package.

Last week, Delta got the pilots' final sign-off on $1 billion in concessions that were a key condition for other debt exchange and financing deals to inject up to $1 billion in new financing.

Speaking to about 200 members of the Rotary Club of Atlanta, Grinstein was noticebly more chipper than in previous months, when he oversaw protracted pilot concession talks, the announcement of up to 6,900 job cuts, and preparations for a possible Chapter 11 filing. The ailing airline has suffered more than $6 billion in losses since early 2001.

After his speech, Grinstein said he welcomes declining fuel prices — airlines' second-biggest expense. He also discounted some industry analysts' comments that Delta's turnaround efforts may have only postponed a bankruptcy filing until next year.

"I think our strength is going to grow, and I think there are going to be enough changes in the industry so that we can increase our revenue," he said. "We're talking about a terrific business opportunity."

He predicted customers will see dramatic changes as Delta overhauls flight schedules, updates aircraft interiors and tries to boost service and efficiency.

"The Delta you see eight or 10 months from now will be quite different," he said.

He also said Delta may re-examine prohibitions against "waivers and favors" that allowed its ticket agents and other employees to overlook fees or fare restrictions to address customer complaints.

"I think we have to empower our people," he said. "I think it won't be too long before we're instituting a policy where they can make decisions in the field."



Bye Bye--General Lee
 
Last edited:
Air Biscuit said:
Pilot pay has never saved any airline from bankrupcy. I would never voluntarily agree to have my pay cut. When it comes down to it being forced by the courts well then so be it. Max pay till the last day!
Kind of hard to prove, isn't it?? What about American? They were certainly at the courtroom door a couple of years ago, and while anything could happen going forward, no one is really talking BK for AAL right now. DL back in the mid-90s is another example where pilots took concessions and the airline stayed out of bankruptcy. The tricky part is proving that without these concessions, these 2 carriers would have filed.

What is more accurate is to say that there is no correlation between high pilot pay and low profitability. Look no further than SWA for proof. USAIR has also proven that it can't make a dime no matter what they pay the pilots. Labor is just one cog in the machine, but unfortunately it is always the one that mngt goes to FIRST when the machine breaks down.
 
ATR-DRIVR said:
General,
Might want to send ol'e GG a note,


FUEL HEDGING!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

why would you hedge now? You hedge when prices are low and expected to go up, not when prices are high and expected to go lower.
 
chperplt said:
A big difference between likely and possible don't you think?

Good catch! LowIQer always modifies the original content of messages to bolster his limpwristed posts and replies.
 

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