Thursday, December 16, 2004
Delta hints at Comair spinoff
Regional carrier could become a public company
By James Pilcher
Enquirer staff writer
NEW YORK - Delta Air Lines' top executive Wednesday publicly discussed the possibility of spinning off Comair, the first time financially strapped Delta has said its Erlanger-based subsidiary might play a different role in the future.
Chief executive officer Gerald Grinstein was careful to stop short of saying the airline is planning to make Comair an independent company. But he said the role of Comair and another regional subsidiary would be compared carefully against their value as assets in the coming months.
"We don't have to own them (Comair and Atlantic Southeast Airlines) to get the benefits from them," Grinstein told The Wings Club, an aviation group, during a question-and-answer session following prepared remarks. "We are looking very carefully at what to do next."
The subsidiaries "are extremely valuable in their role not only as feeders to our hubs ... but they are also very valuable assets, and we need to determine the best value over the long term," Grinstein said.
Comair officials had no comment on his remarks.
Analysts have speculated for years of the possibility of a spinoff, talk that heated up this fall.
A cash-starved Delta narrowly avoided bankruptcy through a last-minute concessions deal with its pilots in October. The Atlanta-based airline has lost more than $6 billion in the last three years and has a massive debt load.
Its stock closed Wednesday at $7.62, down 6 cents.
Comair, the nation's third-largest regional carrier, employs about 4,000 people at Cincinnati/Northern Kentucky International Airport as part of Delta's second-largest hub. It was unclear Wednesday what impact a Comair spinoff could have on its employees or operations here.
After Grinstein spoke, Delta senior vice president and chief marketing officer Paul Matsen stressed that there are no plans to sell Comair or ASA. Delta spent $1.9 billion to buy Comair in January 2000, after previously spending more than $1 billion for ASA.
He reiterated Grinstein's comment that Comair remains a valuable asset, but noted that Delta also uses airlines it does not own to feed its main routes.
"The strategic benefits we garner from our strong position in regional jets can be achieved without ownership," Matsen said.
A spinoff was unlikely under the threat of bankruptcy, since potential shareholders of Comair would be scared off by the possibility that Delta would renege under Chapter 11 on its contracts.
But now that the threat of bankruptcy has been pushed off by at least a year through the pilot deals and new financing, a spinoff could make sense, airline analyst and consultant Julius Maldutis said.
"As they progress with the next step in remaking the company, they need to look at all their businesses, which would include a reassessment of the role and benefits of ASA and Comair," said Maldutis, president of New York-based consulting group Aviation Dynamics Inc. "That could potentially lead to using the two carriers to raise additional liquidity."
Comair was started in 1977 by a father-son team and became a vanguard in the domestic regional industry by introducing the regional jet and teaming up with Delta.
Delta eventually bought part of the company and, after tough negotiations, purchased the company outright in 2000. At the time of purchase, Comair was on the verge of reporting $1 billion in annual revenue, was one of the most profitable airlines in the industry and was the nation's largest regional carrier.
Since the purchase, Comair and Delta have not disclosed Comair's financial numbers separately.
But in the most recent report to the Department of Transportation, the airline reported a net profit of $32.1 million in the second quarter of 2004. Comair also had the lowest cost structure of the nation's seven largest regional carriers.
