General Lee
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Delta faces decision within next few months, analyst says
Staff report
Published on: 08/11/04
Delta Air Lines faces a decision on whether to seek Chapter 11 bankruptcy court protection within the next 2 1/2 months, a Wall Street analyst says.
"Our best guess is that the Delta situation reaches a head in September or October but not beyond," Mark Streeter, an analyst with JP Morgan, said in a report. "We would expect clarity by the end of October unless oil prices subside at least $7 to $8 (per barrel), thereby providing a slight extension..."
Streeter said he thinks Delta management and labor will "push hard for an out-of-court debt restructuring solution." He gauges the chances of a Chapter 11 filing at 49 percent but said they have risen lately.
The analyst also said he expects Delta will try to end future defined pension benefits as part of its restructuring while agreeing to keep the current plan for vested employees.
He said it could be hard for Delta to convince certain investors in aircraft leases to reduce the value of their stakes in an out-of-court deal, which could be an obstacle to a broad debt restructuring. "Delta will have to compel these equity holders to accept terms that although unfavorable, imply a level of impairment that is much less than what would be realized in Chapter 11," Streeter said.
Another JP Morgan analyst, Jamie Baker, said pension restructurings could have "a profoundly positive impact on network airlines." In another positive note, he also said the old-line airlines' cost disadvantage compared to newer discount carriers is falling fast as as the older airlines retool. At the same time, Baker said, the older airlines' fare premiums have started to rise for the first time since 1997.
"With restructuring largely in its infancy, we expect these trends to continue," he wrote.
Bye Bye--General Lee
Staff report
Published on: 08/11/04
Delta Air Lines faces a decision on whether to seek Chapter 11 bankruptcy court protection within the next 2 1/2 months, a Wall Street analyst says.
"Our best guess is that the Delta situation reaches a head in September or October but not beyond," Mark Streeter, an analyst with JP Morgan, said in a report. "We would expect clarity by the end of October unless oil prices subside at least $7 to $8 (per barrel), thereby providing a slight extension..."
Streeter said he thinks Delta management and labor will "push hard for an out-of-court debt restructuring solution." He gauges the chances of a Chapter 11 filing at 49 percent but said they have risen lately.
The analyst also said he expects Delta will try to end future defined pension benefits as part of its restructuring while agreeing to keep the current plan for vested employees.
He said it could be hard for Delta to convince certain investors in aircraft leases to reduce the value of their stakes in an out-of-court deal, which could be an obstacle to a broad debt restructuring. "Delta will have to compel these equity holders to accept terms that although unfavorable, imply a level of impairment that is much less than what would be realized in Chapter 11," Streeter said.
Another JP Morgan analyst, Jamie Baker, said pension restructurings could have "a profoundly positive impact on network airlines." In another positive note, he also said the old-line airlines' cost disadvantage compared to newer discount carriers is falling fast as as the older airlines retool. At the same time, Baker said, the older airlines' fare premiums have started to rise for the first time since 1997.
"With restructuring largely in its infancy, we expect these trends to continue," he wrote.
Bye Bye--General Lee
