Experts predict Comair may be sold

[FDJ2]

It's not a question of if it's only a question of when and how DAL will spinoff it's wholly owned.

Institutional ownership at DAL exceeds the average. 81% of DAL is owned by institutions, that's 10% greater than the average airline and 17% more than the average S&P 500 company. When the institutions talk, the BOD and CEO listen, and the institutions are beginning to question why DAL owns the equity in some of its regional feed, when it can get the same service from others without owning the equity.

"UBS analyst Sam Buttrick pointed out Delta doesn't need to own the airlines to continue using them to connect to points around the country. Delta could contract with Atlantic Southeast and Comair as it did before buying them. "

"The economic benefit could be maintained without maintaining the equity position," he said

"Analyst Raymond Neidl of Blaylock & Partners thinks Delta will ultimately sell one or both of the regional carriers to raise money. He noted rivals Northwest and Continental airlines have done the same. "

"I think they're going to do that at the end of the day," he said. "There's no reason for them to hold on to them."

The only real questions are which goes first, ASA or CMR, and will DAL sell off all the equity or part of the equity.

Certainly, small jet lift is important, but there are a host of vendors available to provide that lift, there really is no need for DAL to own ASA/CMR, when it can get the same service without owning the companies. There is no expectation that DAL will ever recoup the billions spent to own ASA/CMR, just another poor business decision, but the liquidity the sale would bring, without the loss of small jet lift, makes sense.

 

[StaySeated]

According to the 2003 annual report DAL has the following contractual obligations:

2004 $ 4.038 bil
2005 $ 4.284 bil
2006 $ 3.868 bil
2007 $ 2.993 bil
2008 $ 2.998 bil

For an airline with over $13 billion in revenues a year I fail to see any dire need for cash or any reasonable excuse to mention BK escept in an effort to win concessions. Additionally, the debt owed above is artificially high due to the fact that it includes aircraft deliveries that are going to be leased or sold to third party.

As for filing with 1bil or 2 bil in the bank as was mentioned earlier I find that very hard to believe. I remember UAL was watching there liquid position and filed around 200mil. When you know that you are going to file and start looking for DIP fincancing any cash you have in your pocket is gone. Too say DAL would piss away 1 bil prior to the start of restructing seems extreme.

My humble opinion. AMR saved billions in labor costs over the next 7 years with the threat of BK. DAL wants some of that action. Do you really think that DAL wants to be in the position UAL currently is in, unable to even exit restructuring, while aitran and jblu, and virgin usa and whomever else attacks. I don't buy it for a second. They need to find a new playbook, we have seen this hand over and over and over and over and over and over.

 

[bvt1151]

Stay seated,

The 7% difference is the pay CHQ receives from Delta that covers CHQ's profit margins. Remember, its not just about cost, but how much profit the company is making. Actually 7% was a very conservative number. Here are the 2003 Operating margins of some of the better-known fee for departure regionals:

Skywest - 12.2%
ACA - 15.7%
Expressjet - 13.8%
Pinnacle - 14.0%
Mesa - 8.8%

I would conservatively say CHQ is at or above 10%.

I would predict, however, that both Delta management and Comair pilots will get a chance to see how an IPO would work by watching it happen at ASA first.

 

[General Lee]

Lear70,

I really don't know much about Pinnacle, other than it was recently IPO'd at NW and they made some money--in the range of $300-400 million. Also, when I said that we could do that to Comair or ASA---I never said that we wouldn't still use them for feed--I actually gave a Skywest example--giving them a 10 year flying contract. I think the only major difference would be the extra cash in Delta's tight pockets.....

Sleepy,

I have a feeling Dalpa and the company will come to an agreement before then---Grinstein probably doesn't want to give up control to a judge.

Bye Bye--General Lee

 

[sleepy]

Stay seated,

The 7% difference is the pay CHQ receives from Delta that covers CHQ's profit margins. Remember, its not just about cost, but how much profit the company is making. Actually 7% was a very conservative number. Here are the 2003 Operating margins of some of the better-known fee for departure regionals:

Skywest - 12.2%
ACA - 15.7%
Expressjet - 13.8%
Pinnacle - 14.0%
Mesa - 8.8%

I would conservatively say CHQ is at or above 10%.

I would predict, however, that both Delta management and Comair pilots will get a chance to see how an IPO would work by watching it happen at ASA first.

Good points. both ASA and Comair have lower operating costs than any of these airlines (around $.06 per seat mile). I am sure that we also are more profitable to DAL than any of the codeshare partners used by DCI. Why else would they give ASA the 25 additional aircraft if they could make more money with them at Chit or Skywest?

As for spinning-off ASA, I wounder how ASA could go it alone. We only have about three GPU's that work in ATL. All of our baggage service and maintenance on GSE is contracted out to DAL. In fact, I don't think ASA really owns a single asset. We probably rent the new chairs in the crew lounges from DAL. Over time, we have become more and more entangled with DAL (payroll, GSE, reservations, medical insurance, travelnet, computer services, baggage service, etc...), it will be interesting to watch our management untangle the mess they have made.

 

[sleepy]

Lear70,

I really don't know much about Pinnacle, other than it was recently IPO'd at NW and they made some money--in the range of $300-400 million. Also, when I said that we could do that to Comair or ASA---I never said that we wouldn't still use them for feed--I actually gave a Skywest example--giving them a 10 year flying contract. I think the only major difference would be the extra cash in Delta's tight pockets.....

Sleepy,

I have a feeling Dalpa and the company will come to an agreement before then---Grinstein probably doesn't want to give up control to a judge.

Bye Bye--General Lee

General,

I seriously wonder how much GG cares? Why wouldn't he take the 20% you offered now. Why counter you with 36% (more than the original 30% he asked for?).

He has nothing to lose in a bankruptcy filing. If he goes into Ch 11, he can make adjustments to your PWA that will have an impact on DAL's costs for 12 years or longer. If he makes a deal outside of CH 11, he cannot get those kinds of changes.

My neighbor is a Bankruptcy Attorney with a BIG ATL law firm that has done work for DAL in the past. Without giving me any specific information, he indicated to me in a recent conservation that the DAL Ch11 filing is coming soon.

 

[General Lee]

Sleepy,

I am glad he knows that---maybe he was telling you to short the stock. DL cannot just go into Chap 11----devaluing the stock to almost worthless, and then change contracts. There would be huge lawsuits, especially if there is still plenty of cash and loads and operating profits are up. I am sure your lawyer friend would love to work on that case---it would probably allow him to buy three more houses in your neighborhood. Take a look at the analysts---they don't think Chap 11 is possible for a year or two---without concessions. But, they do think you will be spun off. Even Grinstein himself just stated in the stockholders guide that was just sent out that he thought he would not have to bring it to Chap 11. Also, I think he does care---he is 71 and he just moved himself and his wife from SEA to ATL---and I have heard that she wasn't too happy about it. He doesn't want to do all of this and then lose control.

Bye Bye--General Lee

 

[MedFlyer]

According to the 2003 annual report DAL has the following contractual obligations:

2004 $ 4.038 bil
2005 $ 4.284 bil
2006 $ 3.868 bil
2007 $ 2.993 bil
2008 $ 2.998 bil

For an airline with over $13 billion in revenues a year I fail to see any dire need for cash or any reasonable excuse to mention BK escept in an effort to win concessions. Additionally, the debt owed above is artificially high due to the fact that it includes aircraft deliveries that are going to be leased or sold to third party.

As for filing with 1bil or 2 bil in the bank as was mentioned earlier I find that very hard to believe. I remember UAL was watching there liquid position and filed around 200mil. When you know that you are going to file and start looking for DIP fincancing any cash you have in your pocket is gone. Too say DAL would piss away 1 bil prior to the start of restructing seems extreme.

UAL had about 1 Billion in the bank when they filed. You can NOT wait until your down to 200 million to file. If an airline waits that long, it won't be a CH11 reorganization, but instead a CH 7 liquidation. As DL stands today, they can NOT service all of the debt coming due in the next three years. If DL does not get its house in order, BK will happen by no later than Summer '05 (barring something major like USAirways collapses).

Selling off Comair/ASA would buy DL a little time, but it would do little to solve DL's problems. DL needs to make money (and not just lame "operating profits" which are meaningless) and be a competitive carriers. Right now, DL is NOT competitive.

The ONLY reason General Lee (or DALPA) want to see Comair/ASA sold off is because it buys them a few extra months of "industry leading" pay. Beyond that, selling Comair/ASA will not solve DL's problems.

Heed the warning from the ex-TWA guy:

"It would be a Band-aid," said Paul Biederman, a professor at New York University and former Trans World Airlines chief economist. "It's what we did at TWA -- we just sold off assets until we didn't have anything."

 

[rumorhasit]

While taking a crap in cal's Hq mens room I heard someone say merger talks were starting between CAL and DAL...I hope not!!!! The big boys merge then shrink and start merging flights which could lead to a slow down at the regionals...DAL would sell comair just to use "cheaper" skywest...

It gets really old relying on the the majors for a lifestyle or job security while working for the "regional (that goes international)!!!!

 

[BoilerUP]

I was but a YOUNG lad back then, but after reading Hard Landing and Flying the Line Vol. II, it looks to me like the shadow of Frank Lorenzo is weighing on DAL management.

I've said it before and I'll say it again... DALPA needs to go on a PR offensive, telling the media just how much money Delta would save by accepting the pay cuts ALPA has previously offered. They need to publicly question why management continues to let the airline bleed instead of taking proactive steps already on the table to get the company back into the black.

Average Joe sees the Delta pay scale in the media compared to AAL and UAL, then to JetBlue and SWA and wonder why you guys are paid so much. You need to tell them why, and how much you are willing to give up for the company to survive, but that you aren't a concession stand! Win the PR battle and you win the war!

 

[General Lee]

Boilerup,

That would seem true, and our MEC chair did give a good response in the ATL journal Constitution a couple days ago. But, from what I understand is that if we eventually did end up in Chap 11--whatever we stated in public would be the BEGINNING point where the judge would start concessions. I don't know if that is exactly true, but that is what I have heard.


Sleepy,

Here is the statement from the investor's guide: Among the tidbits from the 1st Quarter Financial Results, at the 11:43 mark:

GG speaking "I also believe we can reach that goal (achieve long term sustained profitability) without resorting to court supervised restructuring."


I know that is NOT dogma---but he would be questioned on the stand and given that quote as a reference. He could just blame it on the pilots, though....

Bye Bye--General Lee

 

[vmc-hound]

If dal-cal merge then only one reg will be needed for both majors...?

 

[General Lee]

VMC-hound,

First of all, a DL/CO merger would result in a new call sign:

"DelTaco" (DelTA--CO).


As far as more than one regional---I would believe that would be true.(all speculation here---I have no idea if this would ever happen) I bet there could be three or four--with Coex being a major one out of IAH and EWR, and ASA/Comair out of ATL/CVG. Skywest would still be the larger one out of SLC, and maybe we would have another base somewhere else--but my guess would be that CLE and DFW would soon cease to exist as bases.....The only real question would be what would happen with the monopoly in NYC----JFK, EWR, and Delta Shuttle in LGA......?

Bye Bye--General Lee

 

[sleepy]

Boilerup,

That would seem true, and our MEC chair did give a good response in the ATL journal Constitution a couple days ago. But, from what I understand is that if we eventually did end up in Chap 11--whatever we stated in public would be the BEGINNING point where the judge would start concessions. I don't know if that is exactly true, but that is what I have heard.


Sleepy,

Here is the statement from the investor's guide: Among the tidbits from the 1st Quarter Financial Results, at the 11:43 mark:

GG speaking "I also believe we can reach that goal (achieve long term sustained profitability) without resorting to court supervised restructuring."


I know that is NOT dogma---but he would be questioned on the stand and given that quote as a reference. He could just blame it on the pilots, though....

Bye Bye--General Lee

General,

I don't doubt that DAL is considering selling either ASA or Comair. That would be fine with most of the ASA and Comair pilots I have talked to. It is also possible that they may only sell Comair and keep ASA (I have heard tlk of that).

DAL still makes more money when ASA and Comair fly DAL pax, even with our higher pay and better benefits. Go figure?

As for the DAL bankruptcy, it is not something I am wishing for or anything, but I think that you are kidding yourself if you believe that they won't file Ch 11 because GG bought a Condo in ATL (still owns his place in SEA I believe).

A merger with CAL would make sense to me, I just wonder how the list integration would work out. Who would buy who?

 

[surplus1]

A merger with CAL would make sense to me, I just wonder how the list integration would work out. Who would buy who?

Sleepy,

Your kidding, right? You don't seriously expect a Delta pilot to be capable of imagining that anyone could ever buy Delta, do you? That's high treason, man.

Of course the buyer would be DELTA and the CAL pilots would welcome a staple, after the 1020 are recalled.

How could you think otherwise??????

 

[General Lee]

Hey, if that would help us stay around, I would be all for it. I don't care who buys who---with the ALPA merger policy in force (which always works.....)--I think I would do ok. And, I can't wait to use the callsign--"Deltaco 106 heavy left base runway 8L."

Bye Bye--General Lee

 

[FDJ2]

DAL still makes more money when ASA and Comair fly DAL pax, even with our higher pay and better benefits. Go figure?

Are you sure about that? M. Burns, DAL's CFO can't come to that conclusion, yet you can. Sure ASA/CMR are profitable, DAL makes sure of that, but ASA/CMR don't pay the debts on the RJs, they don't pay for marketing, distribution, selling expenses, etc. For those reasons, M. Burns stated that it can not be determined if ASA/CMR are profitable for DAL, since all those numbers are not broken down between ASA/CMR/DAL/ACA/Skywest/ Eagle/Chautauqua, but rather for the network in its entirety.

OTOH, NWA does breakdown their operating costs and revenues between the mainline and the regionals. In NWA latest SEC filing RJs provided $217M in revenue and $256M in expenses for an operating margin of -17.9%. Considering that NWA only had approximately a -4% operating margin, it doesn't quite look like those RJs at NWA are making much of a profit for NWA. Perhaps things are different at DAL, perhaps DAL's RJs make more revenue and their costs are significantly less than at NWA, but I doubt it. JMO, but I think DAL's RJ utilization will come under a great deal more scrutiny during G. Grinstein's "strategic review" as will DAL's ownership of RJ feed equity.

 

[FDJ2]

Sleepy,

Your kidding, right? You don't seriously expect a Delta pilot to be capable of imagining that anyone could ever buy Delta, do you? That's high treason, man.

Of course the buyer would be DELTA and the CAL pilots would welcome a staple, after the 1020 are recalled.

How could you think otherwise??????

DAL pilots can imagine being bought, which is why we have "change of control" protections written into our contract as well as "fragmentation" protections. In the event DAL were to be bought or DAL were to acquire a carrier with other than permitted aircraft integration of the transferring pilots would occur in accordance with the ALPA Merger Policy, or the Allegheny-Mohawk Labor Protection Provisions.

Perhaps Surplus you should of thought of these protections prior to your acquisition, but then again, you could never have imagined being acquired.

 

[michael707767]

DAL pilots can imagine being bought, which is why we have "change of control" protections written into our contract as well as "fragmentation" protections. In the event DAL were to be bought or DAL were to acquire a carrier with other than permitted aircraft integration of the transferring pilots would occur in accordance with the ALPA Merger Policy, or the Allegheny-Mohawk Labor Protection Provisions.

Perhaps Surplus you should of thought of these protections prior to your acquisition, but then again, you could never have imagined being acquired.

Ouch. He has you there Surplus.

 

[sleepy]

DAL pilots can imagine being bought, which is why we have "change of control" protections written into our contract as well as "fragmentation" protections. In the event DAL were to be bought or DAL were to acquire a carrier with other than permitted aircraft integration of the transferring pilots would occur in accordance with the ALPA Merger Policy, or the Allegheny-Mohawk Labor Protection Provisions.

Perhaps Surplus you should of thought of these protections prior to your acquisition, but then again, you could never have imagined being acquired.

I could see DAL filing CH11. Management gets the judge to get rid of these bothersome provisions of your PWA, then you are aquired by CAL. A staple on the bottom of the CAL list for you.

Who will provide the DIP for the DAL bankruptcy? TexasPacific Group, of course!

 

[sleepy]

Are you sure about that? M. Burns, DAL's CFO can't come to that conclusion, yet you can. Sure ASA/CMR are profitable, DAL makes sure of that, but ASA/CMR don't pay the debts on the RJs, they don't pay for marketing, distribution, selling expenses, etc. For those reasons, M. Burns stated that it can not be determined if ASA/CMR are profitable for DAL, since all those numbers are not broken down between ASA/CMR/DAL/ACA/Skywest/ Eagle/Chautauqua, but rather for the network in its entirety.

OTOH, NWA does breakdown their operating costs and revenues between the mainline and the regionals. In NWA latest SEC filing RJs provided $217M in revenue and $256M in expenses for an operating margin of -17.9%. Considering that NWA only had approximately a -4% operating margin, it doesn't quite look like those RJs at NWA are making much of a profit for NWA. Perhaps things are different at DAL, perhaps DAL's RJs make more revenue and their costs are significantly less than at NWA, but I doubt it. JMO, but I think DAL's RJ utilization will come under a great deal more scrutiny during G. Grinstein's "strategic review" as will DAL's ownership of RJ feed equity.

Maybe that is why Michele Burns is not longer with us, she did not know how to figure out how much money ASA and Comair were making for DAL shareholders. In case you didn't know she was fired by GG and got a job as CFO with Mirant (a bankrupt energy trading company, you know, like Enron).

Of course that is not true, DAL knows exactly what ASA and Comair are adding to the bottom line. They guard that info carefull because they really don't want us to know how much revenue we are generating for DAL. Then we might really start asking for more.

You can bet that DAL really does know how much money ASA and Comair add to the bottom line. If we were not the most profitable to DAL, then why did DAL buy us and not Skywest of Chit? If we are not the most profitable DCI carriers, then why do we operate more flights than any of the others?

 

[Vortilon]

Sleepy,

ASA & CMR have been known quantities and working with DAL for 15 years or more....hence the head start. Also being co-based at DAL's largest hubs comes in handy. I would think the way DAL has pitted you against other regionals should give you reason to believe you won't necessarily always have the monopoly in the jet feeder world. Chitaqua & company are relatively new entrants to the "free for all" RJ provider atmosphere we are living in and it certainly could get worse. Who knows how many airplanes will go to the lowest bidder over the years.

ASA & CMR are the convenient no-brainer choices for the most part; I don't believe its solely because of the profitability of one carrier over the other.

But as companies start nickle & diming even the regionals, its gonna get interesting. Unfortunately I don't think "interesting" is the most common word we're all be using.

 

[N2264J]

fascinating

I don't care who buys who---with the ALPA merger policy in force (which always works.....)

Is he:

a) Serious?

b) Baiting the junior guys?

c) A flamer?

d) Avoiding the wife again?


Obviously, General Lee has an open mind. We can feel the draft.

 

[General Lee]

N2246J,

Well, my wife has told me lately that I really do need to get off this board----it probably is giving me an ulcer. By the way---I was joking about the ALPA merger policy and how it "always works." Fact is, there are probably people that are never happy. I actually like flying for a living, and I know I can live on less---but I do enjoy a nice paycheck every once and awhile. I hope it all works out in the end for all of us.....

Bye Bye---General Lee

 

[FDJ2]

she did know how to figure out how much money ASA and Comair were making for DAL shareholders.

Really? And how much would that be?

 

[FlyComAirJets]

Much more than mainline!

Comair reported a profit, I beleve, in the $40 million range.

Have a nice day.

 

[sleepy]

Really? And how much would that be?

Ooops. I fixed it, insert a "not" in there.

 

[JI Gone OH]

40 Million Sounds about right.........

 

[FDJ2]

Re: Much more than mainline!

Comair reported a profit, I beleve, in the $40 million range.

Have a nice day.

I suppose that's easy to do with the mainline providing all the subsidies such as paying RJ debt. But when you look at the only major to separate RJ RASM/CASM from the mainline, you see that NWA shows a significant operating loss for the regionals, something to the order of a -17% operating margin.

It's easy to make a profit when the mainline is paying most of your bills, but having a subsidized profit from the mainline does not mean your operation is profitable for the mainline, since ultimately the mainline has to pick up the tab for your high costs.

 

[captainv]

FDJ2,

No matter which side you're on, isn't the basic problem here that we don't know what financial impact ASA/CMR have because DAL doesn't release the costs?

it's a fact that CMR posted a 4th quarter profit of @ $40 million. what we don't know is how much we cost the company. DAL does pick up the tab on a lot of things, but to what extent? you don't know any more than I do, so the argument is academic at best.

and if M. Burns and Delta doesn't know exactly what those costs are, this company is in a lot more trouble than i thought.

Captainv