Interesting possibility for CMR and ASA

[Dave Benjamin]

Anyone notice this sentence in a recent news article?

"Several analysts asked Grinstein Wednesday if he would consider raising cash through an initial public offering of stock in Delta's regional subsidiaries. While suggesting that wasn't likely, Grinstein repeated that the airline hasn't ruled out any options."

 

[FlyComAirJets]

Yeah, so?

 

[General Lee]

Every stock holder would question why Grinstein wouldn't do it before any possible Chap 11 filing.

Bye Bye--General Lee

 

[FlyComAirJets]

But not before they question why he didn't unload such anchors as Shuttle, Express, and Song.

 

[Heavy Set]

How would you "unload" Song? Wouldn't you just repaint the airplanes into the original paint scheme and maybe keep the new entertainment equipment to compete better with the JetBlue product? Why would you want to "unload" mainline capacity just as the economy is starting to rebound?

You can spin off the regionals to the public and still retain operational integration (in return for some needed cash - just like Continental and COEX)... That makes more sense.

 

[XRMEFLYER]

Every stock holder would question why Grinstein wouldn't do it before any possible Chap 11 filing.

You mean like all of the questions surrounding Mullin and his decisions toward the end. How many millions did he walk with? You don't seriously think those guys care what second guessing they may face after the fact do you? Their futures are secured, can you say the same?

 

[FlyComAirJets]

Simple, actually.

Heavyset,

Just substitute the word "regional" in your question with one of those three significant drags on earnings and you have your answer.

You don't have to change a thing since they are already marketed differently. Then if they tank, Delta will have already pocketed the proceeds of the spin off. Operational control will exist as they always have, Delta can still do all the scheduling, reservations, dispatch, maintenance etc. (for a non-subsidized rate, of course), AND the spin offs can enjoy the invigorating challenges of competing in the marketplace along with all those other DCI carriers you admire so much.

Selling them for something before they are completely written off, now THAT makes sense. Have a good one!

 

[Pez D. Spencer]

Heavy Set,
If you really think you are threatening Comair and ASA pilots... even if you think you make us feel just a little uncomfortable with your comments about spinning off Comair or ASA, you are completely wrong. Throw us in the briar patch... go on...

 

[Oakum_Boy]

Heavy set, you fat phucckkerr...

 

[XRMEFLYER]

if you think you make us feel just a little uncomfortable with your comments about spinning off Comair or ASA, you are completely wrong.

He has the nerve to suggest that we, DCI, take a pay cut too.
Sounds like a good plan to me, for them anyway, get us to take pay cuts and then sell us off to raise more money. Nice try fat boy!

 

[General Lee]

Oakum boy,

BOY, you are phunny.


Xremeflyer,

You don't think share holders would sue if they thought things were done improperly? They could sue the board. I am sure there are plenty of lawyers that would love to have the chance.


Flycomairjets,

Well, Express is gone, and Song would take away the needed capacity that we are adding back to mainline. The Delta Shuttle could be sold potentially, and the Marine Air terminal along with it. The difference here with us is that they could spin you guys off, and then give you a 10 year contract just like Skywest, and we would have the same RJ lift as before---but with extra cash in our pockets and less debt. How do you know there aren't investors out there that would be interested, especially with a 10 year contract? Someone bought $325 million in bonds through Morgan Stanley three months ago..... It is doubtful that they could do the same with the Shuttle---sell it to someone and then they fly it for us under a Delta banner.....I am not trying to scare anyone here---just trying to look at all of the possible outcomes...

Bye Bye--General Lee

 

[BeechFO]

deleted...wrong post

 

[FlyComAirJets]

Express gone, WTF, NO ONE TOLD ME!!! Oh the agony.

OK, I've had my cookie and I feel much better now. But thanks for making my point for me:

Look at what the good shareholders of Delta received when Express was quietly sent to Stupid Idea Heaven joining those illustrious airline-within-airlines such as CALite, MetroJet, and Shuttle By United (or was United By Shuttle? Whatever)... zip, nadda, NOTHING.

Now take Song, but take it quick. Just spin it off now and get some of that desperately needed cash. Pi$$ing off $4 million per day i$ a lot of dollar$, you know. You aren't taking anything away, heck, you don't even have to paint over that pure genius paint scheme. The lift remains intact although you might have to sign a ten year contract which guarantees all leather seats with IFE flying out of JFK in 757s will be done by $ong. "Scope 2014" you can call it. But hey, I'm just looking at all the possible outcomes too.

 

[General Lee]

Flycomairjets,

I would have to say that it is more likely that you guys would be spun off, since the analysts asked Grinstein about it. I don't remember them asking Grinstein anything about selling off Song.

Bye Bye---General Lee

 

[FlyComAirJets]

Yeah, so?

It comes up repeatedly on various boards. Twice on this board alone. What is the fascination with this? I think the portions of the company that are chronic laggards should be most concerned about a spin off, that is usually how it works in the business world.

Yesterday's webcast indicated profitability was years away. Playing financial musical chairs doesn't change that. Losing money is losing money.

It seems more and more like we're rearranging the chairs on the deck of the Titanic.

 

[surplus1]

General,

Why not spin off Song? It could raise a few hundred millions and might actually become profitable once the agreements with its pilots were renegotiated (that in turn would relieve Delta of considerable overhead including pension burden).

If the pilots don't want to go with Song they could opt to stay with Delta. I'm sure the newly independent company would have little trouble hiring qualified pilots from those furloughed at USAir, United and American, and even Delta.

A ten year contract with Delta for services such as reservations, marketing, advertising and handling would generate profits for Delta in lieu of the current losses from Song.

Sounds like a capital idea to me. Nothing personal, just good business.

 

[bvt1151]

Comair and specifically ASA probably represent more cash value to Delta right now than long-term value. Grinstein is of the opinion (and rightly so) that $240 million a year isn't worth it if you need $1 billion right now.
Comair has been a very lucky airline, this doesn't mean that within the year we won't find ourselves in a hopeless position. Let it be known, Comair cannot compete against low-ball carriers like CHQ in a fee for departure environment. If the standard profit margin for contract carriers is 7%, you can bet CHQ is close to that number. That means that right now, ASA and CMR have a 7% advantage over CHQ and SKYW. That advantage will evaporate should (when?) Delta IPO the W/O's.

So what happens if CMR or ASA are spun off?

• Merger talks would be all but silenced. We would no longer be owned by the same company and a successful petition to the NMB would be much less likely.
  
• Growth would stop...at least until CMR/ASA pilots took a pay cut down to CHQ rates (not likely), or until CHQ pilots got a pay raise to CMR/ASA rates (even less likely). Thus growth at Comair/ASA would come to a grinding halt with the endless proposals of pay cuts. Hopefully a halt in growth is as far as it would go, without the jets being reassigned to SKYW or even CHQ.
  
• Downward pressure on everybody's (especially mainline) wages would be the new norm with no end in sight. Concessions would be a monthly headline at all current Delta-owned pilot groups. The portfolio concept could then be unstoppable at all ALPA carriers.
  
• RJ's would still arrive at DCI (CHQ) and Delta would still shrink in ranks, this time faster due to the lower labor costs.
  
• Code-shares for Comair and ASA with other airlines would be out of the question. Firstly, we can't compete. Secondly, Delta will, either by maintaining a controlling interest in the companies, or by force-feeding a long-term contract, not allow another DCI carrier to join ranks with a competitor, or like ACA, become a new competitor.
  
  

Explain to me again why the Delta pilots are so interested in seeing ASA/CMR IPO'd when it will mean lower wages and less pilots. What happened to the policy of bringing RJ rates proportionally up to mainline wages as a means of limiting RJ growth? Or is it that some DAL pilots (like the ones posting on this board) have more interest in seeing Comair/ASA fail than Delta succeed?

The writing is on the wall. The fact that ASA was awarded as many jets as they were through the RFP is attractive to future investors. Comair has had a track performance before the buyout that could propell it to a substantial IPO. It doesn't matter if these are really true or not, but whether or not DAL management believe they're true or not. Grinstein has stopped denying the sale of assests and is now replying with "anything is possible."

Comair and ASA leadership (all pilots for that matter) need to stop arguing with the DCI-hating Delta pilots and start asking, "what if they're right? Do we have a plan to prevent what they are suggesting?" Unfortunately our only defense to an IPO seems to be, "they'll never do that." That is insufficient for me. They most certainly could do that, and I don't want to know why they won't, but what we'll do if they do. I will not go down with the ship explaining why it theoretically never should have started leaking.

Delta pilots, stop poking holes in our boat! Don't you realize the answer to the RJ "threat" is higher RJ wages? The trend is going the wrong way and yet you are in favor of that trend?!?! Unbelievable! Why would you possibly demand Comair/ASA pilots "share" in the pay cuts when the difference between mainline and connection pay rates is the problem, not the actual values. RJ's are so attractive to mgmt because they are so much cheaper to operate in proportion to mainline aircraft than they should be. Don't you realize that, according to DOT Form 41 reports and Eclat, the MD-80 costs over 12 cents per ASM (12.6) while the most expensive 50-seater is at 10.3 CASM? 70-seaters are even better at an industry average of 6.5 CASM. To put that into perspective, Southwest operates their 737's at 4.3 CASM. This is a reverse economy of scale. How can a 142-seat aircraft be more expensive per unit than a 50-seat aircraft, and how will lowering the 50-seat costs help bring those numbers back into proportion? The only reason airlines fly larger aircraft is because they cost less per unit to fly. You have made it cheaper to use a smaller aircraft per seat/mile than a larger aircraft, and yet you blame the pilots who are trying to perserve their wages and shrink the difference. Don't you understand that the inevitable Comair/ASA concessions after an IPO would make the situation so much worse for you?

But at least Comair suffers, right?

If DALPA saw past their own current pay check, they'd see that, even though the sale of CMR/ASA means they would have to take fewer cuts now to save the company, the downward pressure on their pay, and specifically the growth of the ever-hated RJ, only this time at non-ALPA carriers, would mean a much much smaller paycheck in the long-run. An IPO of Comair/ASA is an unacceptable situation for all ALPA carriers (except of course Mesa). Who would benefit? CHQ, SKYW, MESA, Teamsters, and all managements. Delta,Comair, and ASA leadership must be willing to use all available power to prevent an IPO.

 

[DDpaysoff]

Here is a link to the CC yesterday, I highly reccomend listening to minutes 33-42.

http://biz.yahoo.com/cc/1/40851.html


Referrring to Ray Neidl's question regarding an ipo of cmr or asa Grinstein said, based on how we 'now' look at it the connection carriers are an integral part of our business plan going foreward.
analysis; why are you 'now' looking at them as an intregal part of your business plan going foreward, are you saying that you did not look at them as being so integral before, when you tripled the size of ASA and CMR?

Sam Bechwick stated, while I certainly concur and appreciate your earlier comment regarding the integral aspect of your currently wholly owned regional carriers and how important they are for your overall network, that economic objective can be fully realized without holding the equity position. After an unprecedented period of silence, grinstein stated , well we've obviously looked at a lot of alternatives and we will continue to look at a lot of alternatived and we are aware of that statement.
You can't be more direct than sam was, he is a player and always hits the nail on the head. I will not follow many, but what J.P morgan has in this guy, is certainly enough to closely follow the percentage of institutional ownership JP morgan carries in DAL. Gerry's dance around this question is just a perfect example of not coming foreward and admitting they are making money had over fist for delta. Why else would Gerry, fell it is neccesary to keep that equity postion at all?
You can paint doom and gloom all you want, I am not buying it....figuratively anyway. Future skies are blue for DAL they don't need the massive paycut they are asking for, but managment has to justify their compensation and pension packages, and it shows that their leadership is inferior to their peers if they don't get paycuts, because peers already have. Sound familiar?
Bottom line, if Skywest, Chautaqua and ACA can make a dollar, DAL could have had that dollar, or at least close to it if it is true that CMR and ASA's costs are too high. Which I certainly don't believe, escpecially since the published CASM's for CMR are the lowest in the industry.

 

[FDJ2]

Why not spin off Song? It could raise a few hundred millions and might actually become profitable once the agreements with its pilots were renegotiated (that in turn would relieve Delta of considerable overhead including pension burden).

If the pilots don't want to go with Song they could opt to stay with Delta. I'm sure the newly independent company would have little trouble hiring qualified pilots from those furloughed at USAir, United and American, and even Delta.

A ten year contract with Delta for services such as reservations, marketing, advertising and handling would generate profits for Delta in lieu of the current losses from Song.

Sounds like a capital idea to me. Nothing personal, just good business.

Surplus, if DAL were to spin off Song and use Song to fly DL code, they would have to use DAL pilots flying under the DAL PWA. That's why it's not even mentioned, except by the uninformed, since there is no advantage in the spin off. OTOH, several analyst are questioning DAL over spinning off ASA and/or CMR. As Buttricks of USB stated in the conference call, DAL can still have the RJ lift, without owning the equity.

I would think that you would be over joyed to be spun off Surplus.

 

[surplus1]

Surplus, if DAL were to spin off Song and use Song to fly DL code, they would have to use DAL pilots flying under the DAL PWA.

That assumes that your PWA will remain intact in the event of a fire sale. If I were you, I wouldn't hitch my wagon to that star. There's a reason why Song was created as a subsidiary, rather than an "airline-within-an-airline" a la Delta Express and it wasn't the paint job.

If you really think that your "seniors" won't agree to cut their losses by dumping the juniors, when the going gets really rough, think again.

Remember too, Song doesn't have to operate under the DL code. It's an LCC in a package, ready to go. Isn't your former President (Reid) now employed by Branson to start a new LCC? It would be poetic something if he just bought the package from DAL, sans your bodies or your PWA. He could have it up and running in 90-days. The DL code isn't the panacea that you think it is. Never say never.

Of course that's just an uninformed opinion, so don't sweat it.

As far as the analysts go, if they really knew how to run an airline they would be CEO's not analysts, don't you think?

I would think that you would be over joyed to be spun off Surplus.

If it were possible, without a cumbersome contract with Delta, I'd be hugging management and singing kumbaya. But alas, that is not likely, so no, I would not be overjoyed. Given what four years of Delta ownership has done to the company's entrepenuerial spirit and how your scope clause has saddled us with the wrong mix of airplanes I would not be a happy camper to see us as a clone of XJT.

Nevertheless, there is a high probability that we would be a lot more dangerous to y'all as an independent subcontractor than the current status quo. Be careful what you ask for, you might get it.