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Yet another interesting article about DL/NWA, and others...

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General Lee

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Airline industry flies into liquidity turbulence
Economic headwinds buffet a vulnerable industry, may drain cash reserves
By Christopher Hinton, MarketWatch
Last update: 5:46 p.m. EDT April 4, 2008
NEW YORK (MarketWatch) - As if soaring fuel costs, plunging share prices and heightened safety concerns weren't enough, the U.S. airline industry this week was also roiled by two new bankruptcies, the latest evidence the sector is flying into an increasingly nasty storm.
The bankruptcies, by Aloha Airlines and ATA, were largely the result of high costs and cutthroat competition, a dynamic playing out across the rest of the industry. The demise of the two airlines carries an ominous message for the so-called legacy carriers like United, American and Delta, which have so far withstood the current round of financial buffeting.
"For the rest of the industry, it just highlights the pain that all the carriers are going through right now," said Jim Corridore, an airline analyst with credit rating agency Standard & Poor's. "This is a death by a thousand cuts," he said.
Most of the industry's current problems are not new. For years, a poisonous combination of high costs, overcapacity, ageing fleets and public dissatisfaction has beset U.S. airlines. Now, a financial market meltdown and a weakening economy are chewing into the industry's financial resources and forcing carriers into uncharted territory as they struggle to survive.
$100 oil
At the heart of the matter is the cost of fuel. The price of a barrel of oil is stuck above $100, more than three times what it was five years ago, when oil was trading at around $30 a barrel. Back then, jet fuel prices at American Airlines were about 88 cents a gallon, now American said it's paying $2.64 a gallon.
Over at Delta Air Lines (DALdelta air lines inc del com new
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DAL) , executives said they expect to spend an additional $2 billion this year for fuel.
Indeed, each $1 a barrel increase in the price of oil decreases earnings for the 11 largest carriers by about $200 million, according to data provided by Calyon Securities, a research firm.
Carriers have been trying to keep ahead of the higher costs by raising airfares and adding fuel surcharges, but the new revenue hasn't kept pace and many airlines are starting to dip into their cash reserves. Calyon expects the big network carriers to tap more than a quarter of their collective $19 billion in cash before the end of 2009.
"The network carriers, and most of the low-cost carriers, will survive the weak economic environment and high fuel prices over the next two years," Calyon analyst Ray Neidl said. "However, if high fuel prices and a lackluster economy persist through 2009, cash reserves at many airlines might become a concern."
At the top of the list is American Airlines, where cash reserves as a percentage of estimated revenue are expected to fall to 9.4% in 2009 from 13.3% this year. Close on its tail are Continental (CALContinental Airlines Inc
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CAL) and United Airlines, with cash as a percent of estimated revenue declining 2.8 points and 1.4 points, respectively.
Among the low-cost carriers, Calyon said Frontier Airlines (FRNTfrontier airlines holdings i com
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FRNT) and AirTran Holdings (AAIairtran hldgs inc com
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AAI) subsidiary AirTran Airways could see their cash fall below 10% this year. Some analysts expect Frontier to run out of cash by as early as the end of this year.
If these airlines do find themselves strapped for cash, it will force them to sell assets, park older planes, cut back on their workforce, and reduce the breadth of their business. Further out, it could lead to a complete shut down of operations, as with Aloha and ATA, and some analysts speculate things won't get better for the industry until at least two of the major carriers go under as well.
That's why so many analysts love Southwest Airlines (LUVSouthwest Airlines Co.
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LUV) . The Dallas-based carrier has positive cash flow and is well hedged for higher fuel prices, so it merely has to wait out its weaker rivals to snatch up additional market share.
Also well positioned for the coming recession are Delta and Northwest (NWAnorthwest airls corp com
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NWA) airlines, having just come out of bankruptcy last spring, according to Calyon.
Shakeout coming?
Major carriers have been preparing for a shakeout. United is removing 15 to 20 of its older, less fuel-efficient aircraft from service and is delaying the purchase of new aircraft; AMR has been trying to sell its American Eagle business; and just this week, Northwest Airlines said it would park more of its older aircraft, raise its fuel surcharge for international flights and begin charging $25 for a second checked bag. See related story.
"Over the past several months, the price of oil has risen dramatically to all time highs and there is no reasonable basis to conclude that oil prices will materially decline anytime soon," said Northwest Chief Executive Doug Steenland. "These increased costs are significant and call for a strong response from us."
Dwindling cash reserves will eventually bring credit downgrades, making it harder and more costly for airlines to buy the newer, more fuel efficient aircraft that would bring down their fuel and maintenance costs. Already the major carriers have poor credit ratings.
In fact, one of the rationales behind a Delta-Northwest merger, which the two airlines have been discussing recently, is that the surviving carrier would have stronger balance sheet that could raise its credit rating. That would give the merged airline access to more capital for expansion at less cost and give it the flexibility to park more of its older, more expensive aircraft to reduce capacity and firm up airfares.
Northwest, whose fleet's average age is 20 years, has one of the oldest fleets in the industry and spends almost 7% of its operating revenue on maintenance, materials and repairs
.


(the rest of the article deals with mx issues as of late)


Christopher Hinton is a reporter for MarketWatch based in New York.



That highlighted part is important. We need to know what the plans would be with those DC9s before we ever merged, and if we have to use arbitration it would be nice for the arbitrator to know that the DC9s could go away. Otherwise, let's just have 2 seperate contracts, and our pilots will stay with our planes, etc. Sounds fair to me. If their planes are going away, our pilots should not be affected.


Bye Bye--General Lee
 
That highlighted part is important. We need to know what the plans would be with those DC9s before we ever merged, and if we have to use arbitration it would be nice for the arbitrator to know that the DC9s could go away. Otherwise, let's just have 2 seperate contracts, and our pilots will stay with our planes, etc. Sounds fair to me. If their planes are going away, our pilots should not be affected.


Bye Bye--General Lee

sounds more like you need nwa to be able to buy those new planes...
 
Why do you continuously harp on NWAs 9s. DAL has some really old 767s and MD80s. Are those on the chopping block too? Or are they going to last forever? At some point in the future they will be gone.... I know what you are going to say. "Those leases were renegotiated." The 9s have no leases. Fuel prices will be the determiner here, not age....


Airline industry flies into liquidity turbulence
Economic headwinds buffet a vulnerable industry, may drain cash reserves
By Christopher Hinton, MarketWatch
Last update: 5:46 p.m. EDT April 4, 2008
NEW YORK (MarketWatch) - As if soaring fuel costs, plunging share prices and heightened safety concerns weren't enough, the U.S. airline industry this week was also roiled by two new bankruptcies, the latest evidence the sector is flying into an increasingly nasty storm.
The bankruptcies, by Aloha Airlines and ATA, were largely the result of high costs and cutthroat competition, a dynamic playing out across the rest of the industry. The demise of the two airlines carries an ominous message for the so-called legacy carriers like United, American and Delta, which have so far withstood the current round of financial buffeting.
"For the rest of the industry, it just highlights the pain that all the carriers are going through right now," said Jim Corridore, an airline analyst with credit rating agency Standard & Poor's. "This is a death by a thousand cuts," he said.
Most of the industry's current problems are not new. For years, a poisonous combination of high costs, overcapacity, ageing fleets and public dissatisfaction has beset U.S. airlines. Now, a financial market meltdown and a weakening economy are chewing into the industry's financial resources and forcing carriers into uncharted territory as they struggle to survive.
$100 oil
At the heart of the matter is the cost of fuel. The price of a barrel of oil is stuck above $100, more than three times what it was five years ago, when oil was trading at around $30 a barrel. Back then, jet fuel prices at American Airlines were about 88 cents a gallon, now American said it's paying $2.64 a gallon.
Over at Delta Air Lines (DALdelta air lines inc del com new
News, chart, profile, more

Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
DAL) , executives said they expect to spend an additional $2 billion this year for fuel.
Indeed, each $1 a barrel increase in the price of oil decreases earnings for the 11 largest carriers by about $200 million, according to data provided by Calyon Securities, a research firm.
Carriers have been trying to keep ahead of the higher costs by raising airfares and adding fuel surcharges, but the new revenue hasn't kept pace and many airlines are starting to dip into their cash reserves. Calyon expects the big network carriers to tap more than a quarter of their collective $19 billion in cash before the end of 2009.
"The network carriers, and most of the low-cost carriers, will survive the weak economic environment and high fuel prices over the next two years," Calyon analyst Ray Neidl said. "However, if high fuel prices and a lackluster economy persist through 2009, cash reserves at many airlines might become a concern."
At the top of the list is American Airlines, where cash reserves as a percentage of estimated revenue are expected to fall to 9.4% in 2009 from 13.3% this year. Close on its tail are Continental (CALContinental Airlines Inc
News, chart, profile, more

Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
CAL) and United Airlines, with cash as a percent of estimated revenue declining 2.8 points and 1.4 points, respectively.
Among the low-cost carriers, Calyon said Frontier Airlines (FRNTfrontier airlines holdings i com
News, chart, profile, more

Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
FRNT) and AirTran Holdings (AAIairtran hldgs inc com
News, chart, profile, more

Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
AAI) subsidiary AirTran Airways could see their cash fall below 10% this year. Some analysts expect Frontier to run out of cash by as early as the end of this year.
If these airlines do find themselves strapped for cash, it will force them to sell assets, park older planes, cut back on their workforce, and reduce the breadth of their business. Further out, it could lead to a complete shut down of operations, as with Aloha and ATA, and some analysts speculate things won't get better for the industry until at least two of the major carriers go under as well.
That's why so many analysts love Southwest Airlines (LUVSouthwest Airlines Co.
News, chart, profile, more

Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
LUV) . The Dallas-based carrier has positive cash flow and is well hedged for higher fuel prices, so it merely has to wait out its weaker rivals to snatch up additional market share.
Also well positioned for the coming recession are Delta and Northwest (NWAnorthwest airls corp com
News, chart, profile, more

Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
NWA) airlines, having just come out of bankruptcy last spring, according to Calyon.
Shakeout coming?
Major carriers have been preparing for a shakeout. United is removing 15 to 20 of its older, less fuel-efficient aircraft from service and is delaying the purchase of new aircraft; AMR has been trying to sell its American Eagle business; and just this week, Northwest Airlines said it would park more of its older aircraft, raise its fuel surcharge for international flights and begin charging $25 for a second checked bag. See related story.
"Over the past several months, the price of oil has risen dramatically to all time highs and there is no reasonable basis to conclude that oil prices will materially decline anytime soon," said Northwest Chief Executive Doug Steenland. "These increased costs are significant and call for a strong response from us."
Dwindling cash reserves will eventually bring credit downgrades, making it harder and more costly for airlines to buy the newer, more fuel efficient aircraft that would bring down their fuel and maintenance costs. Already the major carriers have poor credit ratings.
In fact, one of the rationales behind a Delta-Northwest merger, which the two airlines have been discussing recently, is that the surviving carrier would have stronger balance sheet that could raise its credit rating. That would give the merged airline access to more capital for expansion at less cost and give it the flexibility to park more of its older, more expensive aircraft to reduce capacity and firm up airfares.
Northwest, whose fleet's average age is 20 years, has one of the oldest fleets in the industry and spends almost 7% of its operating revenue on maintenance, materials and repairs
.


(the rest of the article deals with mx issues as of late)


Christopher Hinton is a reporter for MarketWatch based in New York.



That highlighted part is important. We need to know what the plans would be with those DC9s before we ever merged, and if we have to use arbitration it would be nice for the arbitrator to know that the DC9s could go away. Otherwise, let's just have 2 seperate contracts, and our pilots will stay with our planes, etc. Sounds fair to me. If their planes are going away, our pilots should not be affected.


Bye Bye--General Lee
 
sounds more like you need nwa to be able to buy those new planes...

Oh really?

You must have missed this part of the article:


"LUV) . The Dallas-based carrier has positive cash flow and is well hedged for higher fuel prices, so it merely has to wait out its weaker rivals to snatch up additional market share.
Also well positioned for the coming recession are Delta and Northwest (NWAnorthwest airls corp com
News, chart, profile, more)"


It sure doesn't seem like we NEED anyone's help. But you think otherwise......and watch out for all of that debt that is coming our way? Our guys don't seem that nervous. The NWA DC9s seem to be going away, and if they do, so should their own pilots first. Fair is Fair.....


Byet Bye--General Lee
 
Better to have DC-9 on property than 100 plus EMB-190. IS the total operating cost of the DC-9 that bad when you figure in NO payment?? If it is a wash then why not fly them?? If your losing money flying them even with no payments on them, then yeah maybe its time to get a new plane, but if the new plane is EMB190, noone will like the payscale on that!!!!!!!!! I say keep the DC-9 around!!!
 
"Why do you continuously harp on NWAs 9s. DAL has some really old 767s and MD80s. Are those on the chopping block too? Or are they going to last forever? At some point in the future they will be gone.... I know what you are going to say. "Those leases were renegotiated." The 9s have no leases. Fuel prices will be the determiner here, not age...."
-Jam-Bro



Are you kidding me? Those old 767s were the 767-200s, and they are all at ABX now. Our 767-300ERs are fairly new, and our MD88s are a heck of a lot newer than your DC9s, and AA's MD80s. (they still have them flying). Our MD90s are even newer.

Why would this article suggest that your planes are old? Why do they cost so much money for upkeep? Read it again. You have less planes than Delta, but spend more money on MX----that is a fact. Your domestic fleet is not flexible and that is another reason Steenland is looking for help.


"Northwest, whose fleet's average age is 20 years, has one of the oldest fleets in the industry and spends almost 7% of its operating revenue on maintenance, materials and repairs."


Bye Bye--General Lee
 
Last edited:
Better to have DC-9 on property than 100 plus EMB-190. IS the total operating cost of the DC-9 that bad when you figure in NO payment?? If it is a wash then why not fly them?? If your losing money flying them even with no payments on them, then yeah maybe its time to get a new plane, but if the new plane is EMB190, noone will like the payscale on that!!!!!!!!! I say keep the DC-9 around!!!

Really? I have read that a DC9 burns as much fuel as a 757. It has no autothrottle or FMS---and guzzles gas while it looks for headings and wind corrections. Their domesitc fleet is described by the press as "inflexible."

We might say "heck yeah, let's keep the DC9s around--they are a REAL pilot's airplane...." Management and the press(analysts) don't think so, unfortunately.....


Bye Bye--General Lee
 
That highlighted part is important. We need to know what the plans would be with those DC9s before we ever merged, and if we have to use arbitration it would be nice for the arbitrator to know that the DC9s could go away. Otherwise, let's just have 2 seperate contracts, and our pilots will stay with our planes, etc. Sounds fair to me. If their planes are going away, our pilots should not be affected.


Bye Bye--General Lee[/QUOTE]

By that rational, if NWA pilots are taking the penalty for aircraft that are leaving(DC-9s)then they should also be credited with the aircraft that are arriving(B787s). In other words, when the B787s arrive, your pilots at Delta shouldn't be affected.
 
From the 2007 10-k's filed around a month and a half ago:

NWA average age of fleet = 17.5 years.
DAL average age of fleet(no RJ's) = 13.7 years
(with RJ's included = 12.4 years)

DAL 767-300's: 21 at average age of 16.9 years
DAL 767-300ER's: 59 at average age of 11.9 years
DAL MD88's : 117 at average age of 17.5 years
DAL MD90's : 16 at average age of 12.1 years

To CBS marketwatch 17.5 = 20. It's not really important but I'll go with the 10-K numbers over a reporter's generalization.

Are NWA DC9's old? You bet. Overall, average fleet age difference between NWA/DAL is less than 4 years.

DAL owns 67% of it's fleet.
NWA owns 83% of it's fleet.

Note to the usual suspects: Not saying that any of this matters one bit. I just like to work with factual numbers when comparing these things and I think the average industry financial reporter is clueless.
 

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