Should Delta Spin Off Comair and ASA?

[Heavy Set]

I just posted this on the Major forum as well.

So, should Delta spin off Comair and ASA? I can't see how operating Comair and ASA is a requirement for providing a "quality" product - Skywest and CHQ provide good service and are not wholly owned... What is the benefit of full ownership in this case? Continental spun off most of Continental Express (CO still retains some ownership) and they still work reasonably well together - Continental derives the same benefits as before.

I can think of the following advantages/disadvantages for the various constituencies involved:

Advantages for Delta Airlines:

1. Much needed cash infusion (hundreds of $millions)
2. Less financing debt for new RJs
3. Better operating cost transparency - can't hide RJ costs
4. Lower operating costs provided by increased competition among all regionals COMPETING for feeder service
5. Maintain operational consistency through competition for contracts - better be on time or we will work with CHQ or Mesa instead...
6. Fewer HR hassles - avoid potential Comair-like strike in the future if it can work with many other regionals to potentially cover hubs (reduces operational risk for Delta)

Advantages for Comair/ASA pilots:

1. Ability to increase fleet through working with multiple airline partners instead of just Delta
2. Potentially new bases for flying outside of Delta system (any work for other airlines)


Disadvantages for Comair/ASA pilots:

1. Lower pilot wages most likely required in order to compete for business with Delta or other airlines - must have low operating costs to maintain some profitability while bidding for work
2. Compete with Mesa, CHQ and others for feeder contracts
3. Any RJ growth would require debt on Comair/ASA balance sheet which would not be guaranteed by Delta - more expensive for a smaller company


I don't see why Delta NEEDS to continue to own ASA and Comair. There are not that many operational benefits - Skywest and CHQ already work well with Delta and don't require ownership. Continental spun off COEX and retains benefits. Delta could use the cash and yet still maintain high service level standards by forcing all regional carriers interested in working with Delta to contractually agree to high quality standards.

So, what do you think? Should Delta spin off Comair and ASA? Everyone agrees that Delta could use the cash... Continental has done it successfully. If not, what are the benefits of retaining Comair and ASA given that other regional partners (CHQ and Skywest) are proving to be great partners without DAL ownership?

Any thoughts? Yes or no to spin off of Comair and ASA?

 

[Ben Franklin]

The regional subset is proportional to the sub-strata that has permeated the major/regional mindset. For example, you mentiod the CAL holding company as one example of the mainstream major to regional exhibition. CAL holdings, Inc. has substantially increased its pension funding through the sale of XJT stock via the spinoff. While a lesser company would dictate otherwise, mainly due to ignorance, neither a diatribe or a mantra has developed in the marketplace for an airline seat. Things just are the way they are. Now, to be more clear, misalignment in the seat mile agreement due to cost infusions from the pricing index have reiterated and reinforced the marketing skeptics' viewpoints on seat mile arrangemnt costs and structural balance within a route segment. To put it bluntly and frankly, as a CEO once explained, "We expect to sell our seat inventory to the public at a wholesale markup which is a formulary derivative of our market share divided by seat miles per segment added to our return fares minus labor costs, plus a marginal margin markup to allocate appropriate share value to resource development". To be even more clear on the vast subject, one must assume three things: 1. airlines fly airplanes 2. CEO's are responsible to the share holders for share value and 3. employee costs can be variable. Ceteris Paribus, there are 1,000's of variables that can ruin an airline's route line markdown cost. Let's elaborate some more on the routing of the airframe. "Gauging", the marketing practice of putting the right plane on the right route is one that requires excellent planning, excellent computer skills as well as an appreciation for rap music.


Goto

www.executivessaynothingwhentheytalk.com/airlineceo



Sincerely,

B. "that' s how you debate"(- old school) Franklin

 

[Heavy Set]

Any serious replies? Yes or no - should Delta spin off Comair and ASA?

 

[ATR-DRIVR]

No, but thanks.

 

[Slim]

I've wondered the same thing...

If ASA and/or Comair are sold, I hope any potential buyer demands the transaction includes all firm orders and options which were placed prior to DAL's purchase of either/both carriers. That might cause DAL to think twice.

In late 1998/early 1999, I looked at the fleet numbers for all Delta Connection carriers. All jets currently on the "property," plus firm orders and options totaled over 500 airframes...50 and 70 seat versions. That total includes ASA, Comair and SkyWest. ACA and Chataqua were not part of the DCI network.

Given the current economic environment for airlines, in general, I wonder if there are any serious buyers out there. As DAL moves closer to a potential CH 11 BK filing, the price they could command for such a sale falls dramatically. Someone could acquire a viable Part 121 carrier for near fire sale prices.

 

[XRMEFLYER]

Why not!

 

[Heavy Set]

Spinning off refers to selling shares to the public - NOT SELLING TO ANOTHER CORPORATE ENTITY OR AIRLINE. COEX was sold to the public although Continental still retains an equity stake.

Selling to the public (public shares) in this case.

Yes or no and why?

 

[FlyComAirJets]

Yes, but don't just stop there.

Great idea, however, you should carry the idea all the way through. Not only should Comair and ASA be spun off, but all entities of Delta should be offered as separate operations ala the breakup of AT&T into the what were called the "Baby Bells."

Song, Delta Express, and Delta Shuttle are already distinct operations but there could also be new divisions established. How about Delta Domestic, Delta Pacific, Delta Caribbean, and Delta Atlantic?

Can't stop now, I'm on a roll!

They could also establish Delta Central America, Delta Atlanta Regional Transit Authority (DARTA), and my favorite, Delta Flies The Delta Airlines.

By splitting up the entire airline as opposed to say, Continental Express' spin-off, each entity and their fragmented operations staffs will be able to enjoy the benefits of free capitalism and not be saddled with the half billion dollar note to fund pension plans they themselves (other than CALEx management, of course) will never achieve. With your stunning logic, Heavy Set, we can look forward to many years of cut throat competition as each pilot group is pitted against another in the true spirit of unionism. Who needs management when we have a master of industry such as yourself to come up with ideas like this?

Be careful, you might get what you wish for ... and maybe a wee bit more.

 

[skydiverdriver]

I think most Comair and ASA pilots would be happy if they sold us, as it would give us more room for growth. However, I think you forgot the reason Delta purchased them in the first place. Remember when BizEx was a Delta Connection feeder out of Boston? Then, one day, American bought them and made them part of Eagle. Delta realized that if they lost their feed to another carrier, they would not have all the traffic and would have to replace the feed somehow, or pay someone who they are competing with. So, they bought their two largest regioinal partners, and now nobody can take them away.

Also, just because Comair gets sold, doesnt mean we have to take lower wages to compete for flying. There is far more to our business than just crew costs, and it's the other "regionals" that need to bring up the slack. I can't believe someone such as yourself is advocating someone take a pay cut, especially when you think we are taking your jobs away anyway. That makes no sense.

 

[Heavy Set]

Skydiverdriver,

I have never been an ADVOCATE for lower salaries - especially in my current situation. Mesa has already done a great job of lowering the bar for everyone - especially if it operates the rumored 737-300 operation in the near future.

Your point about salaries not being the only component under consideration ("There is far more to our business than just crew costs") is a great point - and it is THE SAME POINT used by the mainline Delta pilots - their salaries are not the only expense items that need to be reviewed in light of the new LCC environment (although they get most of the attention). What about a revenue-generating plan that will actually work? Get my point?

However, IF a separate Comair/ASA were to compete in the future with CHQ or Mesa for regional growth at Delta or other airlines, I doubt Comair's management would look favorably upon higher-than-average regional salaries... Even current growth at both ASA and Comair might be reduced if lower-cost alternatives like CHQ and Skyway are used more and more.

 

[CRJ puppy]

That would explain why you are not in management, sir.

 

[GogglesPisano]

If DAL declares Ch 11, they'll be the first things to go.

 

[amcnd]

I will make it short. It all comes down to PROFIT. In AE and AX case AMR getts a extra 8%+or- profit from Eagle then from AX (TSA/CHQ). On a fee for departure deal they pay a set amount lets say $2000 a departure AX operates at $1500 a departure and getts 500 profit. Well Eagle gett the same amount 2K and makes 500 but that 500 goes right back into AMR's pocket.( all the numbers usesd are made up). I am sure Delta is the same. It does'nt help in the long run and that is what they are focusing on.

What good is 1 BIllion going to do from a sell when they are 21Bill in debt. (Eagle for AMR) NOt much.

 

[Pez D. Spencer]

Whew, glad we got that straight.

 

[jobear]

No
WHY:
Whoose going to pay Mainlines and Managements salaries?

You can't hide what you no longer own

Jobear

 

[General Lee]

Exactly.

And, Delta could easily give ASA/Comair a 10 year contract (like Skywest) and that would attract potential investors, and at the same time giving needed cash. Also, a lot of that debt is from RJs--and we would love to give that away too. As soon as Comair's contracts expire---the new company would DEMAND new wage cuts also--so you could actually bid for new work--since other Majors would require that before they pay for the feed. Our scope would still apply too---and that wouldn't allow the new Comair or ASA to get anything larger than 70 seats. I think the larger investors (like GE Capital) will demand Grinstein sell ASA/Comair before any Chap 11 situation gets close. The COEX/Xpressjet sale would be the model. And then the new company etc....would actually pay for our services that they currently get for free (to make them look profitable)--like reservations, insurance, gate services at Delta staffed airports, etc....


Bye Bye---General Lee

 

[wil]

Great ideas, keep DCI in place with non-wholly owned carriers! That way the furloughs can operate the Lazy-boy handle a little longer instead of a yoke. We all know the answer in the log run...

 

[FlyComAirJets]

Let's see, Gee Lee ... spin off ASA and Comair and pocket the cash, saddle them with a ten year contract, and make sure your scope still applies so that we "could not get anything larger than 70 seats." Why the hostility chief? With friends like you, we sure don't need management to villify, we seem to be doing just fine sticking it to each other.

As I said before, perhaps Delta should spin off the true money losers like the Shuttle, Express, and sad Song. Then we could all compete with one another when our "contracts expire" (uh, actually they amend). I'll bet we can compete VERY effectively with your cost structure. And you too can pay for services we allegedly "get for free."

See you at The Whipsaw Bar & Grill.

 

[bladeusa]

careful what u wish for.. sell off comair and asa.. while they keep making money while mainline loses it.. next thing u know comair and asa will be buying delta.. stapling them to the bottom and the wronged mainline pilots forming a MLDC for fair and equal representation =)~

 

[XRMEFLYER]

I think the larger investors (like GE Capital) will demand Grinstein sell ASA/Comair before any Chap 11 situation gets close.

More like you hope they will be asking those questions!

 

[ATR-DRIVR]

JUST WHO IS GOING TO BUY THEM???

 

[AMANSWORLD]

Let em spin ASA and Comair, we will just compete with em.

 

[anon]

Let's see...

A Ch. 11 null & voids scope in all respects.

Maybe DAL will use that chance to place 90-100 seaters at DCI.

Good seat-per-mile costs, appropiate size for many markets, and D-scale wages for crews and support personnel.

 

[General Lee]

First of all---I am just suggesting what COULD happen. Grinstein might do it---or he might not. It is interesting to think about this senario----since every other senario has been presented.

When it comes to DCI being profitable, I think that could be true. But what about this: After 9-11 we parked many many planes--and a couple fleets---including the remaining 727s and L1011's, and then the MD-11s after the IRAQ war. We needed then RJs after 9-11 to save market share, and they did a great job. Now, after 3000 less pilots at mainline and probably an extra 1000 at DCI, the passengers are coming back. They are--but there is one big change--the fares. The fares are probably half what they used to be. So, now we have 50-60 less mainline planes (20 727s, 14 MD-11s, and 20 or so L1011s) and they were replaced with quite a few more RJs---70 seaters now also included. The passengers are back, but the fares are lower---and what we really need is MORE PASSENGERS to fill seats to try to MAKE UP FOR the lower fares. We need more feed to bring in more passengers to ensure our hubs are full to the max---trying to squeeze out as much revenue as we can out of the lower fares. But, we have problems---more RJs which clog up the system(ORD)--costing more for fuel due to holding and congo takeoff lines---but still result in less seats than if we still had those larger planes. One 727 could carry more than 3 50 seat RJ loads---but equal one blip on the radar screen. So what are the other airlines doing? Airtran is dumping it's Airwisky contract in favor of only mainline airplanes. Jetblue's smallest plane will have 100 seats. Southwest doesn't want any RJs. What can we do? Well, we have now pulled out every plane from the desert (except the MD-11s) that we planned to come back, and then we are stuck. We are stuck with too many RJs that clog the system, and not enough mainline aircraft to make up the difference for the lower fares. We could make more revenue with the lower fares if we had more seats. Look at the stats---they say this summer will be as busy or busier than the Summer of 2000. We will have unbelievable holding at ATL--even on VFR days, and ORD is limiting the number of departures and arrivals---and most of the flights that will be cut will be RJ flights.

This problem, IMO, is not the pilots' fault at DCI or mainline, but a planning problem. Yes, we need some pay cuts also to help cut costs--and I really hope they come to an agreement on that soon---but we really need larger airplanes and more seats to compete with the LCCs. Song is doing better,(it's now been around almost 1 year---and with a name like Song---it needed time for people to get used to it) and the Delta Shuttle is still a prized asset that does well with the 737-300Gs. (the 738s were moved to other markets that needed more seats than MD88s)

As far as the POSSIBLITY of selling of ASA/Comair---I really don't know if that is an option, but there would absolutely be investors---especially if Delta tagged on a guaranteed 10 year contract onto it and allowed other carriers to bid for their services too. Investors would know that the money from the IPO would help Delta and make it even a little bit financailly better, helping it try to weather this storm. As soon as fuel prices become more realistic (in the $25-28 per barrel range), the airlines will become a lot more healthy.

Bye Bye--General Lee

 

[General Lee]

Anon,

If you want to fly a 100 seater for D scale wages and sit on it until you retire(with no retirement), go for it.

Bye Bye--General Lee

 

[Heavy Set]

Just to clarify, spinning off an entity does not necessarily mean selling it to another company. Spinning off to the public means selling shares in the entity to the public. Continental spun off COEX to the public (sold shares to the public) but kept a slice of the equity for itself.

You don't need corporate buyers to spin off a division or subsidiary...

 

[anon]

Ugh ... "General" ... I don't feel the love here...

Ouch ... that really hurt. You are truly a wit and God's gift to aviation. Thank you so much for your advice, I'm a much better person now by far.

This humble servant has been put back in his place ... his "D" scale place.

(... you gotta love it ...)

 

[General Lee]

anon,

I personally don't want the future 100 seaters to go to D scale, I would rather have some of the 1060 Delta furloughs fly them, and then as they eventually go back to larger planes, have ASA or Chataqua pilots get hired to move right into them---for mainline. I am sure the wages on the 100 seaters would be negotiated to be lower than the other mainline planes---but that was also the case at Delta Express on the 737s.

As far as my tone to you---I got the impression from your post that you guys at DCI would want the 100 seaters----over looking our 1060 furloughs---which should have first rights. The rates, as I said, would be reduced for a new aircraft anyways---but we should get them back into a cockpit. If I misread your tone or point, I apologize.

Bye Bye--General Lee

 

[anon]

Noted... and accepted... likewise, if I took offense too early, I also apologise.

(I was merely repeating something I had heard from some GO Mgmt types recently.)

I don't want to see any pilots furloughed. I was on strike with Eastern and furloughed by Pan Am and it's not fun.

I've had the chance to work with some of the DAL, UAL, and USAir furloughs that ASA has hired. They have been, without a doubt, great folks and deserve the best. They work hard and have good attitudes considering what they have been through.

Most of the ASA guys are in favor of hiring DAL furloughs. In my opinion, I love to hire in the following order...

DAL/DCI furloughs
OAL furloughs
... all others...

When Eastern went on strike, 9000 of us were on the street. Many other airlines came to our aid, offering preferential interviews and such. I'd love to see that happen again.

Good luck to all to furloughed guys ... may you get back to work quickly.

 

[GogglesPisano]

JUST WHO IS GOING TO BUY THEM???

None other than Johnny O of course.