General Lee
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Moody's Cuts Delta Rating, Cites Protracted Pilot Talks
Tuesday February 17, 5:58 pm ET
By Elizabeth Souder, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Delta Air Lines Inc. (NYSE
AL - News) got a vote of no confidence Tuesday from Moody's Investors Service (News - Websites) , as the airline struggles with the highest pilot salaries in the industry.
On Tuesday, Moody's cut Delta's debt rating to B3 from B1, keeping the airline's bonds in the junk category.
The ratings agency cited Delta's weak cash flow, limited prospects for near- term yield improvement and difficult cost-cutting process.
Delta remains in the red. The Atlanta airline in the fourth quarter turned a net loss of $327 million, wider than the $363 million net loss the year before.
And analysts from Moody's and other research groups say the airline's costs are worrying. Delta's cost per available seat mile, which measures the cost to fly one available seat one mile, rose 4.5% to 10.87 cents for the quarter. Competitor UAL Corp. , which is restructuring under bankruptcy protection, had unit operating costs of 9.85 cents during the quarter.
"This continues to show you the challenges we are facing," Peggy Estes, a spokeswoman for Delta, said of Moody's action.
The trouble is, Delta pays its pilots more than other airlines pay their pilots, so Delta's unit costs are comparatively higher than its peers. Some analysts estimate Delta's pilot salaries are around 30% higher than those of other major airlines, and twice as high as the industry average.
Delta's new chief executive, Gerald Grinstein, continues to negotiate with pilots for pay cuts. Moody's said in a research note explaining the downgrade that talks could drag on, slowing down the necessary cost cuts.
"The timing of labor negotiations could be protracted and as such could bring substantial further deterioration in financial strength during that process," Moody's said.
Analysts with investment banks and other research groups agree.
One analyst, who declined to be named, said investors are worried Grinstein will insist on a perfect contract that slashes salaries until they are marked to market and alters work rules to match competitors. Naturally, pilots resist such deep cuts, and it could take years for Grinstein to convince pilots to accept such concessions, the analyst said.
On the other hand, most analysts say Delta isn't likely to have to file for bankruptcy. Moody's put a stable outlook on Delta's rating, reflecting the airline's "strong liquidity position" and the expectation that Delta can manage its cash flow through aircraft financing and by cutting capital spending.
Delta's cash and balance sheet liquidity are sufficient to make debt payments, pension payments and capital spending, Moody's said.
Bye Bye---General Lee
PS--Read the last three paragraphs. We are willing to give them probably 20% NOW, and some benies. But, Grinstein wants it all.......
Tuesday February 17, 5:58 pm ET
By Elizabeth Souder, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Delta Air Lines Inc. (NYSE
AL - News) got a vote of no confidence Tuesday from Moody's Investors Service (News - Websites) , as the airline struggles with the highest pilot salaries in the industry.On Tuesday, Moody's cut Delta's debt rating to B3 from B1, keeping the airline's bonds in the junk category.
The ratings agency cited Delta's weak cash flow, limited prospects for near- term yield improvement and difficult cost-cutting process.
Delta remains in the red. The Atlanta airline in the fourth quarter turned a net loss of $327 million, wider than the $363 million net loss the year before.
And analysts from Moody's and other research groups say the airline's costs are worrying. Delta's cost per available seat mile, which measures the cost to fly one available seat one mile, rose 4.5% to 10.87 cents for the quarter. Competitor UAL Corp. , which is restructuring under bankruptcy protection, had unit operating costs of 9.85 cents during the quarter.
"This continues to show you the challenges we are facing," Peggy Estes, a spokeswoman for Delta, said of Moody's action.
The trouble is, Delta pays its pilots more than other airlines pay their pilots, so Delta's unit costs are comparatively higher than its peers. Some analysts estimate Delta's pilot salaries are around 30% higher than those of other major airlines, and twice as high as the industry average.
Delta's new chief executive, Gerald Grinstein, continues to negotiate with pilots for pay cuts. Moody's said in a research note explaining the downgrade that talks could drag on, slowing down the necessary cost cuts.
"The timing of labor negotiations could be protracted and as such could bring substantial further deterioration in financial strength during that process," Moody's said.
Analysts with investment banks and other research groups agree.
One analyst, who declined to be named, said investors are worried Grinstein will insist on a perfect contract that slashes salaries until they are marked to market and alters work rules to match competitors. Naturally, pilots resist such deep cuts, and it could take years for Grinstein to convince pilots to accept such concessions, the analyst said.
On the other hand, most analysts say Delta isn't likely to have to file for bankruptcy. Moody's put a stable outlook on Delta's rating, reflecting the airline's "strong liquidity position" and the expectation that Delta can manage its cash flow through aircraft financing and by cutting capital spending.
Delta's cash and balance sheet liquidity are sufficient to make debt payments, pension payments and capital spending, Moody's said.
Bye Bye---General Lee
PS--Read the last three paragraphs. We are willing to give them probably 20% NOW, and some benies. But, Grinstein wants it all.......
