So ASA and CMR are part of the problem?
Here are comments from the DFW DALPA LEC newsletter. I'm sure the General will clear this up......
"Delta Goes to Bankruptcy Court" - A fictional tale
[This article appeared in the last issue of the DFW Round Up, before Delta's pilots offered their latest concession package.]
Judge: Ok, let’s get these proceedings started. I understand you are the attorney representing Delta Air Lines, and that Delta Air Lines is seeking protection under the chapter 11 of the federal bankruptcy code. Is this correct sir?
Delta's attorney: Yes your honor. Here are the required documents and evidence.
JUDGE: As you are aware, in order to grant bankruptcy protection, the law requires that your company must have done everything reasonable in its power to prevent a declaration of bankruptcy. Furthermore, this court must be presented with a viable business plan to ensure this situation does not happen again. I must now review actions by Delta Air Lines leading up to this situation. Please state your case.
DL: Your honor, for the past three years, Delta has suffered major financial losses and a dramatic increase in debt. We are now in a position whereby we cannot pay the debt service given our current revenue and costs. We feel, the primary culprit of our financial situation is pilot salary costs and we seek relief from the pilot contract.
JUDGE: That's it? Just the pilots?
DL: Uh, yes your honor.
JUDGE: Well looking at your quarterly financial reports for the past 7 years, it appears you have let your debt level to swell up to around 20 billion dollars, which causes roughly an annual debt service of a billion dollars per year. So I'd like to see where all this debt came from. First, I see that your company engaged in a 2.5 billion dollar stock buyback program. How much is this worth now?
DL: Um, virtually nothing.
JUDGE: You also spent over 2.5 billion dollars purchasing Comair and ASA?
DL: Yes. Both these companies were subcontractors of ours previously. In the case of ASA, there was quality control issues we felt could be better managed if we owned them. As for Comair, by outsourcing to them so much work, we allowed to become a monopoly in our Cincinnati hub. We were afraid they could become a competitor, or be purchased by one of our competitors.
JUDGE: OK, I also see that your management then went on an aircraft spending spree, buying hundreds of regional jets for your Comair and ASA Delta Connection division at a cost of an additional few billion dollars. I hope these planes are a wise investment. Are they are cheaper to operate?
DL: Well not exactly. These regional jets have a seat cost of around 16 to19 cents per seat mile whereas our existing mainline jets cost about 9.5cents.
JUDGE: So then I hope they attract more passengers. They are more comfortable, right?
DL: No, they are smaller, offer no first class, no overhead storage, and you have to be a contortionist to use the lavatory. But they sure beat flying a turboprop. We believe we can we create greater demand due to higher frequency when we replace mainline flying with these jets.
JUDGE: So you offer more of a product your customer doesn’t truly prefer?
DL: Yes, but they are profitable.
JUDGE: Well how can that be when they cost almost twice as much to operate?
DL: Oh that's easy. Delta mainline subsidizes them by purchasing their airplanes, paying for their facilities, providing marketing, as well as reservations, distribution, etc. etc. Basically, we pay all their fixed costs.
JUDGE: Well how would Delta mainline be doing if Delta Connection was actually paying their own expenses?
DL: Well it doesn’t matter, we are all one big company and all the money goes into one big pot, so to speak.
JUDGE: Then how do you know if the regional jets are truly profitable?
DL: Um, I'll have to get back to you in about four to six weeks on that one.
JUDGE: And if all your money goes into one big pot, how is it you figure that your mainline pilot costs are your problem?
DL: Look, we need to get our costs down and this is the easiest expense to go after, OK!
