skydraulic
remember
- Joined
- Sep 5, 2003
- Posts
- 74
http://www.cincypost.com/2004/04/20/region042004.html
Experts predict Comair may be sold
Delta in dire need of cash
--------------------------------------------------------------------------------
By Alexander Coolidge
Post staff reporter
Some aviation experts predict Delta Air Lines may sell off one or both of its regional airlines -- including Cincinnati-based Comair Inc. -- to slow its financial tailspin.
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."
Delta, a major employer in Greater Cincinnati and Northern Kentucky, is awash in red ink and its cash on hand is being depleted. Chief executive Gerald Grinstein last week was peppered with questions from investment analysts about the airline's financial options as Delta announced it lost $383 million in another dismal quarter ending in March.
Grinstein downplayed the possibility of a spin-off or initial public offering of stock in the airlines, noting they add passengers to Delta's mainline network from smaller cities.
"We think they're essential," he said. "They feed our hubs and are integral to our operations."
But 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.
Chris Lozier, an analyst with Morningstar, said such a deal could raise money but might not be enough to make a difference. He said Delta needs to address its uncompetitive operating expenses, such as its industry-leading pilots' salaries.
"They need to generate cash from operations to get themselves out of this hole," he said. "If you can't get a good price, it's not something you can just do -- even though you desperately need cash."
Other experts also stressed a sale of the regionals wouldn't solve Delta's inability to turn a profit or make much of a dent in its $20 billion in debt and long-term leases.
"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."
Biederman said a sale could only buy Delta time. He said Delta should seek bankruptcy protection to renegotiate better terms for aircraft leases and pilots pay.
Still, other airlines have sold portions of their regional subsidiaries.
Last November, Northwest raised $299 million selling almost 89 percent of its regional carrier, Pinnacle, in an public stock offering. In 2002, Continental raised $300 million with an IPO of ExpressJet that left it with a 53 percent stake in the regional. It has sold off more of that stock since.
Neidl speculated Delta was holding off on a sale to get a better price, but predicted the airline could get only "a few hundred million for each" regional airline.
That would be a far cry from the $700 million Delta bought ASA for in 1999 and the $1.8 billion it spent for Comair in 2000.
Neidl predicted Comair would be a tougher sell because its costs are higher than its sister regional ASA.
Delta has sold other assets to raise cash. Last summer it raised $285 million from selling its 40 percent stake in Worldspan, a computer reservation system.
Spokesman John Kennedy said he wasn't aware of any discussions regarding selling or spinning off regional carriers at this time.
Grinstein has promised the investment community a comprehensive turnaround plan by the end of summer.
Experts predict Comair may be sold
Delta in dire need of cash
--------------------------------------------------------------------------------
By Alexander Coolidge
Post staff reporter
Some aviation experts predict Delta Air Lines may sell off one or both of its regional airlines -- including Cincinnati-based Comair Inc. -- to slow its financial tailspin.
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."
Delta, a major employer in Greater Cincinnati and Northern Kentucky, is awash in red ink and its cash on hand is being depleted. Chief executive Gerald Grinstein last week was peppered with questions from investment analysts about the airline's financial options as Delta announced it lost $383 million in another dismal quarter ending in March.
Grinstein downplayed the possibility of a spin-off or initial public offering of stock in the airlines, noting they add passengers to Delta's mainline network from smaller cities.
"We think they're essential," he said. "They feed our hubs and are integral to our operations."
But 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.
Chris Lozier, an analyst with Morningstar, said such a deal could raise money but might not be enough to make a difference. He said Delta needs to address its uncompetitive operating expenses, such as its industry-leading pilots' salaries.
"They need to generate cash from operations to get themselves out of this hole," he said. "If you can't get a good price, it's not something you can just do -- even though you desperately need cash."
Other experts also stressed a sale of the regionals wouldn't solve Delta's inability to turn a profit or make much of a dent in its $20 billion in debt and long-term leases.
"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."
Biederman said a sale could only buy Delta time. He said Delta should seek bankruptcy protection to renegotiate better terms for aircraft leases and pilots pay.
Still, other airlines have sold portions of their regional subsidiaries.
Last November, Northwest raised $299 million selling almost 89 percent of its regional carrier, Pinnacle, in an public stock offering. In 2002, Continental raised $300 million with an IPO of ExpressJet that left it with a 53 percent stake in the regional. It has sold off more of that stock since.
Neidl speculated Delta was holding off on a sale to get a better price, but predicted the airline could get only "a few hundred million for each" regional airline.
That would be a far cry from the $700 million Delta bought ASA for in 1999 and the $1.8 billion it spent for Comair in 2000.
Neidl predicted Comair would be a tougher sell because its costs are higher than its sister regional ASA.
Delta has sold other assets to raise cash. Last summer it raised $285 million from selling its 40 percent stake in Worldspan, a computer reservation system.
Spokesman John Kennedy said he wasn't aware of any discussions regarding selling or spinning off regional carriers at this time.
Grinstein has promised the investment community a comprehensive turnaround plan by the end of summer.
