Experts predict Comair may be sold

[9rj9]

and if...

Selling a WO doesn't solve all the problems. Delta would have to set a long term contract and future growth for the stock to have any value. Wall street would be very skeptical if they thought the WO would become obsolete. Delta would have to own a large chunk of shares to retain control, then killing us off would be a even bigger loss. Selling Comair or ASA would be the best thing to happen to the WOs.

 

[wms]

After they spin off the WOs they could file ch 11 and contract the international, LCC and domestic flying. They could be an airline in name only and really just be an air travel broker like in the charter industry.

 

[Heavy Set]

Sleepy,

Sounds like a great concept - a virtual airline.

With COEX as a model working well for Continental, I think it is highly probable that Delta would at least seriously consider spinning off ASA and Comair to the public (like COEX). With the operational relationship staying the same (with contracts), Delta really does not HAVE to own its regionals. CHQ and ACA do a great job and they are not wholly owned. Why can't ASA and Comair do the same great job and not be owned? If Delta could spin off ASA and Comair and make some money out of it and yet maintain operational continuity, then it probably should... The business case is there for it and the airline analysts (who don't know everything) agree with it.

On the plus side for Comair/ASA, you guys would likely have fewer growth constraints so long as you could win contracts with multiple carriers (like Skywest and CHQ).

9rj9,

There is no reason why Delta needs to maintain control (or 51% equity). Delta has plenty of low-cost feed alternatives from which to choose. All of the regionals would like to secure contracts with Delta - especially a healthy Delta. CHQ and Skywest do a great job despite zero ownership link. All Delta would have to do is hold the carrot out for the regional partners and future contracts would rely upon quality and dependability (contract performance). Sure, there would need to be a contract in place for the IPO valuation - but it would be for 3-5 years max (it could offer a longer contract period if the cost of business declined - to cover any risk that it could find a cheaper partner in the future). There is no reason for Delta to maintain any equity because CHQ, Skywest and ACA have proven that they can provide great feed and good service despite zero ownership link.

 

[MedFlyer]

Re: What is the benefit of full ownership???

Playing devil's advocate - why should Delta be responsible for all of those regional airplanes and employees when it doesn't have to be? Why shouldn't Delta outsource to lower bidders like Skywest, CHQ and Skyway given that they do provide good and dependable service like ASA and Comair? The LCC environment has changed ALL OF THE RULES and lower cost will be the name of the game.... Never say never. I am sure DAL management is already considering these sobering facts...

You know...you're right. DL really shouldn't own anything....they should just become one big holding company.

Why not spin off the international operations to Air France? Look at the list of benefits.

1) You get cash from the initial offering (considering how profitable the General says international is, DL should easily recoup 1-2 billion)
2) You can maintain the same operational benefits as DL currently gets the codeshare with AF....only more.
3) DL can shift debt to the new "Delta International (operated by Air France)" spinoff
4) Reduce future debt by not having to buy any of those expensive 777s
5) You could force Air France to compete for the work with any other international carriers
6) The French may be a bit rude, but AF's service has to be better than DL's current piss-poor international service.
7) Fewer HR headaches...if AF strikes (and being French you know they will) increase Alitalia feed

Why should DL be in charge of all these complex international operations? Why shouldn't DL outsource all international flying to the lowest bidder (like Air France, Alitalia or Virgin) given they already provide dependable service which is superior to DL's existing service?

You know Heavy Set, if you can't make a living flying, I'm sure there would be room for you in Management. You'd make your big papa, Frank Lorenzo, proud.

I'm sure DL will probably sell Comair or ASA off eventually and it will probably blow up in their face...just like every other move DL management has made.

 

[Heavy Set]

Medflyer,

Don't get me wrong, I am a realist - I do not support DAL management because I don't trust them at all (I don't trust most airline managements). Leo and his team were snakes - nice "secret" retirement plans. The LCC environment has changed everything and all bets are off when costs are concerned as Delta approaches bankruptcy. I know a lot about bankruptcy from my job experience - so now I am a realist.

Don't shoot the messenger. You have to agree that COEX serves as a good model for spinning off ASA and Comair - that's the truth. Now AirTran is severing its CRJ relationship with Air Whiskey. Airlines like Jet Blue are ordering 100 seaters and redefining low-cost/low-fare flying in small-to-midsize markets. Airports like ORD are becoming slot constrained and the role of the CRJ/ERJ is under scrutiny from many angles (including Mike Boyd and Grinstein) - not just me. These are trends that I am sure DAL management are acutely aware of - not just me. We'll have to see what Grinstein plans to do in August...

 

[9rj9]

Heavy Set

I disagree, and think Delta would have to keep a large chunck of stock. If not someone could come in and take the company away from Delta, just like Mesa tried with ACA. Also the IPO would be worth much less if mother Delta was unwilling to tie her own hands to the company. I still think it would be the best thing for the WOs.

 

[General Lee]

9rj9,

Not if you sign a 10 year contract with certain provisions stating a certain amount of time before cancelling a contract. Just remember---"A contract is a contract......" (Thanks Leo--enjoy the $16 million)

Bye Bye--General Lee

 

[sleepy]

Sleepy,

Sounds like a great concept - a virtual airline.

With COEX as a model working well for Continental, I think it is highly probable that Delta would at least seriously consider spinning off ASA and Comair to the public (like COEX). With the operational relationship staying the same (with contracts), Delta really does not HAVE to own its regionals. CHQ and ACA do a great job and they are not wholly owned. Why can't ASA and Comair do the same great job and not be owned? If Delta could spin off ASA and Comair and make some money out of it and yet maintain operational continuity, then it probably should... The business case is there for it and the airline analysts (who don't know everything) agree with it.

On the plus side for Comair/ASA, you guys would likely have fewer growth constraints so long as you could win contracts with multiple carriers (like Skywest and CHQ).

I agree Heavyset. I just wonder why the same thing would not work for mainline as well?

DAL could contract everthing out. DAL Global Services could work on a contract basis providing ground support, gate support and FA's to DAL and other carriers. They could contract maintenance to DAL Technical Services, or to someone else if they ever unionize. They could contract the international flying to DALPA or some other member of the SkyTeam. They could do the same thing for all domestic flying as well (a company like Ryan that AirTran uses could probably do it doe less than DALPA).

Of course they would have to use bankruptcy to gut your PWA, and I don't wish this on you. Think of the flexability they would have to compete with the LLCs. Everything contracted out to the lowest bidder. The ability to quickly adjust to market forces. The ability to provide contract services to other airlines and industries.

 

[FlyComAirJets]

Clearly, a nerve has been struck, and Heavy and Gee Lee are exploiting it. What, insults and intimidation aren't working for ya? Trying to play up regional pilots' fears is thier latest ploy. When Heavy shrugs and says, "I am a realist ... don't shoot the messenger," he is clumsily doing just that.

Gee Lee tips his hand when he balances the benefits of an IPO (money for Mother Delta and the maintenance of their disproportionate contract) with the onerous burden of a ten year contract to keep the W.O.s under their thumb. Can't blame you for wanting your cake (and our cake) and eating it too.

Which is why it aint ever gonna happen. There is no way Delta is going to give the mainline pilots another couple hundred million dollars to blow through like drunken sailors.

Post pay cut and/or BK will have unintended consequences for you, Heavy and the General. Sleepy got it right (hey, I said the same thing a week ago at the beginning of this thread). If Delta reinvents itself as a virtual airline, we will ALL be spun off into the utilmate free for all. No longer will it be a ten thousand pilot behemoth stomping on thousand pilot subsidiaries, we'll all be similar sized entities competing head to head in the ultimate capitalist arena. I like our chances, you should be the one's sweatin' now.

 

[surplus1]

I like our chances, you should be the one's sweatin' now.

They are the one's sweating and that is why you're getting all the anti-CMR/ASA rhetoric.

They think that if they can "get rid" of us, their world will improve. Stress often causes delusions and that's what your seeing.

 

[JetPilot_Mike]

This might already be in one of the 6+ pages of this thread already...

Excerpt: Delta CEO resolute on pilot wage cuts (No spin-offs)
The Cincinnati Enquirer 4-24-04
After the meeting, Grinstein shot down the possibility of spinning off regional subsidiaries Comair (based in Erlanger) or Atlantic Southeast Airlines to raise more cash.

"Comair and ASA are valuable assets," Grinstein said. "The price you would sell them for would be what kind of contract you would give for service ... and you would be tying yourself into a long-term obligation.

"It would seem to me to be counterproductive, so we would rather keep them in the role they are in - providing feed for the network."
View complete article at http://www.enquirer.com/editions/2004/04/24/biz_delta24.html

 

[General Lee]

Yes, he would like to keep them--that is obvious, but if the crap hits the fan---he will sell---or he will have to answer a lot of questions. I hope we never reach that point.

Bye Bye--General Lee

 

[601Pilot]

The main reason Delta purchased ASA in the first
place was to improve quality. It has improved,
but we still have a long way to go. If they
spin us off, I'm sure we'll go back to the way
it was in no time.

 

[skiddriver]

9rj9,

Not if you sign a 10 year contract with certain provisions stating a certain amount of time before cancelling a contract. Just remember---"A contract is a contract......" (Thanks Leo--enjoy the $16 million)

Bye Bye--General Lee

General,

That's exactly why Grinstein says he doesn't want to sell us off. Try and listen to what the man is telling the stockholders:

"Comair and ASA are valuable assets," Grinstein said. "The price you would sell them for would be what kind of contract you would give for service ... and you would be tying yourself into a long-term obligation.

"It would seem to me to be counterproductive, so we would rather keep them in the role they are in - providing feed for the network."

The deal Delta would have to cut to get any kind of price for either Comair or ASA would end up costing Delta more money in the long run than they could hope to gain from the IPO. Delta would have to lock in very favorable terms for an extended period of time to get anyone to buy the stock. The WO pilot groups would have to take a major paycut to make the deal work, and if you think the pilots at Comair will take a paycut BEFORE the sale just to drive up the stock price, think again. They'll have to offer us significant incentive to give up anything. Use your imagination.

Additionally, despite what was posted before by someone else, Delta doesn't make a dime off any stock they retain in order to keep control of the new company. The new company will have a finite value. Delta has to keep the price-to-book ratio in line or no one will buy the stock (it would be overvalued); so they can't just print more stock certificates. There has to be compelling reasons for investors to buy into an IPO, especially in an industry as depressed as ours, floating an offering with bad fundamentals at the start isn't going to raise a dime.

Finally, the "they'll have to answer questions" argument is pretty weak. They can lay out financials (inflated or not) that can show that a decision to keep ASA and Comair is sound, and that is all the majority of the stockholders will want to see. In bad times, you try to shed liabilities, not assets.

 

[wms]

The main reason Delta purchased ASA in the first
place was to improve quality. It has improved,
but we still have a long way to go. If they
spin us off, I'm sure we'll go back to the way
it was in no time.

Actually, the main reason DAL bought ASA & CA was to protect its own interests.

Business Express provided feed service for DAL in the NE and AMR bought them. That left DAL without regional service in BOS and I believe short of service in NY. DAL bought ASA & CA to prevent the same thing from happening in ATL, DFW and CVG. It was purely a defensive/preemptive move.

 

[Publishers]

Shiddriver

I totally agree --- sell the mainline and keep Song, Comair, and ASA.

The points are well taken, however, i do not think in the case of Pinnacle or Express that the time of contract for services was that long.

Secondly if you want a wild senario, Jetblue buys Comair and overnight has a world class route system.

For all of you thread watchers from old, this is why you do not allow common scope with mainline pilots. If Comair was part of the Delta pilot group, there would not even be this possibility.

 

[FlyComAirJets]

Max pay (& scope) to the last day!

And yet, they are completely ready to fly this whole operation right into the ground just like the USAirways pilots are. Unbelievable.

Nice to hear from you Publishers, sometimes only those who have been there can see where we are headed.

 

[standaman]

Re: Shiddriver

Secondly if you want a wild senario, Jetblue buys Comair and overnight has a world class route system.
.

Know that is some wild scenario. I would love to see an airline like that. We also may get that opportunity soon. The Atlantic Coast Airlines/Independence Air could look exactly like that. All else said I don't think it would be in either companies interest to do something quite as crazy as that.

 

[On Your Six]

Isn't COEX Doing Fine?

How many people a couple years back thought COEX would be spun off from Continental? I think Heavy Set is not too off base. Bethune saw a financial opportunity to get some quick cash (it had very low cash at the time) and it still maintains full operational benefits to this day...

Everyone here has responded emotionally because of the unknown job implications of a spin off. That is understandable. However, COEX has done just fine without full Continental ownership. Hasn't it? Are people concerned that without "Mother Delta's" full financial suport, ASA and Comair won't do as well? Help me understand the cause of this apparent separation anxiety....

The quality argument doesn't fly. Skywest and CHQ provide great quality and they are not owned by Delta. There is no reason to assume that Comair/ASA quality would decline after a spin off - that hasn't been the case with COEX. Plus, there would be quality metrics (on-time performance, customer complaint limits, etc.) built into any feed contract with Delta - just like there are now with ACA, Skywest and CHQ.

I don't think Delta mainline pilots are your enemies here - I think Mesa, Skywest, USAirways (MDA) and other pilots who continue to bring down average industry wages (and make Comair/ASA wage levels stick out like a sore thumb) are the people you should be directing your anger to. Growing ASA and Comair at current wage levels will be more expensive than expanding CHQ and Skywest given their lower operating costs - that's a fact. Anything on this board expressed by Heavy and General are merely statements made by most airline analysts.

I think COEX has proven that a WO regional CAN be spun off to the public successfully - and Continental wins by collecting a lot of cash and maintaining the same operational benefits.

What are the benefits to Delta of full ownership of ASA and Comair when CHQ and Skywest partnerships are working quite well without ownership? Simple question...

 

[ATR-DRIVR]

All of the money ASA/CMR makes goes directly to DAL. DAL pays a fee for SKY/CHQ. Simple answer.

 

[bvt1151]

Remember that Coex doesn't have to compete with the "portfolio concept" that Comair and ASA have to deal with. I believe that XJT is the only operator of RJ's for the Contintental name. That is definately not the case for Comair and ASA.

Frankly put, Comair and ASA could not compete with their current cost structure in a fee per departure environment with the current competition (key word). Coex does not have the internal competition CMR and ASA have.

 

[MedFlyer]

Re: Isn't COEX Doing Fine?

What are the benefits to Delta of full ownership of ASA and Comair when CHQ and Skywest partnerships are working quite well without ownership? Simple question...

Two big benefits:

1) DL keeps all the revenue generated by ASA/Comair...they don't keep all the revenue with SKYW/CHQ.

2) DL has control of ASA/Comair. UA is learning the hard way what happens when you can't control your RJ feed.

I don't think most ASA/Comair pilots are afraid of being spun off. In fact, I think many would rather be spun off, so that when/if DL goes BK, ASA/Comair would be better positioned to pick up new work from other carriers.

I think what most pilots at ASA/Comair don't like (and why they are responding on this thread) is that they don't like being vilified by DL mainline. The ONLY reason that General Lee and others want ASA/Comair to be sold is for their own self-interest (not for the health of DL).

DALPA sold mainline flying away years ago and it has come back to haunt them. Now, the flying is gone and mainline pay is heading for a nosedive. So guys like General Lee are desperate to find someone to blame and find some way to preserve what little is left. They think that selling Comair/ASA might save them from the big concessions that are coming. Notice how the General only quotes the analysts that say sell Comair/ASA, while he selectively forgets to quote the analysts that say selling Comair/ASA won't do DL any good.

 

[On Your Six]

This seems to be a recurring point of contention....

Not a simple answer given that Delta carries all of the RJ debt and would need to finance any future RJ orders. Delta does not pay for Skywest or CHQ fleet additions. Delta does not pay for CHQ or Skywest employee benefits. Fee for departure (like CHQ or Skywest) still allows for incremental profit per flight as well as lower RJ operating costs. IF RJs are deployed to the proper markets (lack of LCC competition with lower fares), there should be a great opportunity to charge premium fares and see some good incremental profit over any fee-for-departure.

Clearly we can agree to disagree on this one. I just think COEX serves as a good model for both sides of this debate....

 

[ATR-DRIVR]

Delta does NOT PAY for the ASA airplanes. I asked this very question to the VP last week and the answer was 'ASA pays for the airplanes from the profits it generates. DL acts as 'middle man' between ASA and the finance people.' So should I call him up and say sorry, mainline says THEY pay for them, do you have another answer?

 

[FlyComAirJets]

Hey Six, ya keep on coming up with compelling arguments to sell ASA/CMR. Using your stellar logic, what keeps DAL management from selling off your division of ma Delta? Seems like it would be a great way to get out from under those ruinous pension liabilities.

BTW, which liability is larger, a bunch of leased RJs (which can always be renegotiated and have some earnings potential) or those huge pension obligations (kinda like what sank ole Pan Am)?

Certainly you wouldn't want to saddle us with that debt, oh mighty sky god of industry.

 

[standaman]

It is so interesting to see that this particular subject has gone on so long. Delta simply is not going to sell either ASA or Comair they are the only components of the company making any money. Stop right there. The only way they would sell either of them would be if the airline was in a life or death struggle. They are not there yet. And let's hope it stays that way.

 

[On Your Six]

FCJ,

I have never worked for Delta. I am a furloughed UAL pilot.

Let's assume that you and ATR are correct and that ASA/Comair covers the debt fully. Well, who guarantees the debt? Delta. Who pays for the reservations or the airport kiosks? Are there specific ASA and Comair reservationists? Do you think that ALL of ASA's and Comair's costs are paid independently from Delta? This argument goes around and around and around.

I wish I had a copy of the Sam Buttrick or Ray Niedl quotes that spell out what I am saying - DAL does not NEED to own Comair and ASA. Continental does not NEED to own COEX. I don't have the quote on me - otherwise I would post it.

 

[FDJ2]

So should I call him up and say sorry, mainline says THEY pay for them, do you have another answer?

DAL pays the debt on the RJs. It's in the SEC filing. The total payments for 2004 will be approximately $500M. Have your VP show you how much they paid DAL for the RJs, because it certainly does not show up in any SEC filing, such as income from aircraft leases.

 

[FDJ2]

I wish I had a copy of the Sam Buttrick or Ray Niedl quotes that spell out what I am saying - DAL does not NEED to own Comair and ASA. Continental does not NEED to own COEX. I don't have the quote on me - otherwise I would post it.

"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.

 

[surplus1]

Re: Re: Shiddriver

All else said I don't think it would be in either companies interest to do something quite as crazy as that.

Which companies are you talking about when you say you don't think it would be in their interest? Are you talking about JBlue/CMR or DAL/CMR?