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Delta In Chapter 11 By Sept '05

I can't say whether DL or any other airline will file but I do know that the current airline industry cannot be sustained at $60 plus per barrel. The survivors then are those that can outlast the certain failure of others. Right now, DL is probably the weakest airline outside of BK. Insp, I am not wishing for US' failure but simply pointing out that US is much less stable than DL and has even less staying power. While HP says the merged airline can work w/ $60 per bbl fuel, it will require a significant amount of money for HP to pull off the merger. I don't honestly think that HP will continue to pour money into US if they cannot be viable in the very near future. It is encouraging that US has reduced its losses to much more manageable levels but it is still in a very precarious position. If losses mount going into the fall, it is very possible that HP will simply grab the US assets that matter the most and dump the rest of US' system and forget any attempts at a planned integration. Again, I don't wish US ill will and certainly recognize the difficulties at DL as well as other airlines but pulling off an orderly merger in this environment - which will see B6, WN, and FL only increase the intensity of their attacks on US - is almost too much to imagine.

If DL does file, I am very doubtful that it will remain an independent airline. In many respects, DL is simply a supersized version of US - no real network advantage over any other airline. DL does dominate the southeast which someone would certainly like to have but they probably wouldn't pay much for it nor would they take much of the rest of DL's system. AA comes to mind as the best candidate to take over DL's ATL operation and not much more.

As was pointed out on the UA board, it is possible that DL, like UA, could be restructured in bankruptcy and remain as the surviving company in a merger because of the huge tax benefits which DL has accumulated. It is also possible that if NW's situation deteriorates this fall w/ labor unrest that DL and NW could merge with one of them taking a trip into bankruptcy with the other remaining as the acquirer. NW comes to mind as the most likely to file since their costs have not come down much and DL has shown that they can cut non-fuel costs; NW also would probably like to tear up the union agreements and rebuild an airline sized to be profitable in the current environment. NW's 150 plus DC-9s and -10s are not profitable in the current environment, meaning that at least a third of NW's airplanes need to be removed from service if fuel remains that high. Only if NW filed and DL somehow managed to stay out of bankruptcy (possibly by benefitting from disruptions to NW's service) do I envision a way that DL would become the acquirer. NW and DL each have 3 hubs which are duplicate to the others and which could be downsized (CVG for DTW, SLC for MSP, and MEM for ATL). I would imagine it would be quite easy to pull 150 planes out of a combined NW-DL operation.

At this point, DL has addressed costs and has indicated there is more they can get out. Potential investors would like that. However, DL still has a very weak revenue balance and a completely destroyed balance sheet. The only way I can see DL surviving is if they acquire significant access to another airline's premium revenue markets and are able to redeploy the combined capacity over a smaller but more profitable airline, with bankruptcy being used to get costs out.

One other possibility rather than a full merger is that airlines could pseudo-merge through a revenue sharing agreement and antitrust immunity. DL and NW seem most likely to be candidates for it. If DL and NW both filed for BK they both could dramatically reduce costs, cut hubs, agree to revenue sharing on their duplicated/removed operations, and then ask the DOJ for domestic antitrust immunity - although that has never been given and there is no assurance that it would be. In essence, DL and NW would have to say something like "DL will run the SE, Latin, transcon, and transatlantic operations while NW would run the midwest and transpac operations." The government would have offer it only if they believed that a combined but shrunk DL-NW is better than allowing both airlines be liquidated or acquired by other carriers that will cherry pick the best from the bone.

I am sure DL wishes that it got serious about getting its costs down when AA did. Those airlines like AA and CO that adapted to the new environment early have a pretty good chance of survival. While UA's future is not certain, they have made very good progress and could well be a survivor. There is no doubt, though, that part of the reason for the delay requested by UA's creditors is so that they can watch what is going to happen at DL and NW. If both slash costs and potentially merge, it is a major threat to UA. At the same time, some of the investors that could invest in UA could possibly be more drawn to NW or DL, particularly if they are able to get their costs down and remove capacity more effectively than UA has. Finally, US has hope unless the bottom drops out of the industry that they will be merged into HP with at least some remaining dignity. If the bottom drops out, several airlines are in danger of liquidation and US is probably on that list.

Not a particularly upbeat assessment but I suspect we'll have alot more answers in the next few months. I don't think there is any real incentive for DL or NW to file any time soon. Fly, DL's management isn't getting any retention bonuses now so there is no reason to think their current management would leave right away.
 
Is there not substantial leverage obtained by immanent BK? DL would certainly realize and immediate benefit from legislative action on pensions and lawmakers certainly don't want another airline in BK.
 
😀
WorldTraveler said:
Worldtraveler,

It is a fair assessment. I think we are near the tipping point for DL and NW as a result of high crude price. Before I go into what I think is a likely senario for NW and DL going forward, I'd like to point out that this month is the last month for SPR to be completely filled up. I have not heard a lot of discussions lately about the impact of SPR being filled up on crude price since most of the focus is on the ever increasing global crude demand projection. However if you look at the historical crude price chart, the crude price started this run-up almost exactly after Bush ordered the SPR refill in 02. I hope I'm right that the speculators will back off once they see the increasing build in commerical inventory since approximately 2 million barrels per month can be free up from the SPR refills after this month. Not that I believe the crude price will collapse but $60 per barrel is ahead of the reality, I think. This is not the first time we have a global economy recovery and yet in the past recoveries, the crude never ran up so hugely. Once the commerical inventory is built up sufficiently to cover the future "projected" demand with a comfortable margin, the supply disruption theory will then start breaking down by itself. If the crude price drops fast as a result, then both NW and DL will likely survive the BK. However it may take a few more months or even to the end of the year to show the build before the price comes down. Then the question is who can survive until the end of the year with the crude hovering around 60$/B.

Between NW and DL, I think NW will likely file for BK first. Based on NW's demands on AMFA (50% layoff and 25% cut for the remains) and what NW has been doing (hiring and training backup mechanics), I doubt very much there will be an agreement with AMFA before 8/19. I think the strike will likely happen. DL is financially weak now but NW will be weaker after the strike, which will push NW into BK if the crude still stays above 60$. There are reasons why Garry Wilson, Al Checci and other insiders have been selling their holdings like crazy (whereas DL's insiders have not in the past six months).

On the other hand, the NW strike could be the tipping point for DL to survive the BK. Firstly, there will be some traffic diversion to DL in the short term giving some needed cash to burn through the year. Secondly, with sheded fat (meaning aging fleet and oversized cost structure) and the premium routes structure (pacific and the golden triangle), NW will be an attractive merger partner for DL. Capt. Woerth himself is a proponent for airline mergers so there will be little labor issue. With NW bankrupt and DL on the verge of BK, the anti trust issue may not prevail perhaps only needing to divert some routes. In order to fix its balance sheet, DL can then push the unsecured creditors to convert into equity in order to do the merger and at that time, the unsecured creditors may be more willing to do the deal when they see the combined company will have a better chance to survive. DL will become the controlling party on the book so that the combined company can keep DL's tax loss asset whereas most likely Grienstein will step down and make room for Steenland for the new company. I don't see other airlines will likely step in to compete with DL for the merger as no other airlines will be a better strategic fit for NW than DL.

Anyway, just a thought ! Having said so, DL's stocks have been trading like a BK company lately whereas NW's stock has down but not with the kind of volume you see at DL. Perhaps the market sees otherwise.
Click to expand...
 
birdman,
I think DL's CEO has played "the sky is falling" game for a year now and was able to get significant help last year because people believed him. Granted, I think DL's crisis then was just as bad as it is now but DL has used the threat of imminent BK in order to get breathing room. I still believe creditors who are in a position to help DL will do so if that is what is necessary to keep them out of BK. BK is a messy, costly process and there is no certainty that DL will survive; in the meantime, collateral can be tied up for years.
Perhaps my greatest evidence for an out of court restructuring is that Independence/FlyI pulled off one of the most significant out of court restructurings in the industry this past spring and they were losing half of every dollar they took in in revenue. There were a number of planes that were pulled from them (many of which were given to DL) but they were able to stave off BK and were given the summer to try to fix their business model. They have made tremendous progress and aren't out of the woods yet but I think it is a certainty that they would have had to file by now if they had not been helped out w/ an out of court restructuring. DL is clearly pushing the limit of what can be done out of court but everyone knows that a DL BK would be costly and has no assurance of DL surviving - unless it becomes much smaller. DL doesn't have the premium revenue markets to fall back on and thus really has to shrink to size rather than retreat to the best markets, if that makes sense. At the same time, DL has done a very good job of controlling costs in the last six months but can't fix the revenue problem as fast nor can they fix the balance sheet overnight. An acquisition does help the revenue problem while lenders can help the balance sheet issue, using equity as was suggested if they believe DL is a real survivor. There are plenty of ways lenders could help that tie DL's costs to its competitors to make sure DL keeps costs down since low costs are the only way DL has of being profitable.
Your thoughts are very valid, invtrade. I certainly hope as well that fuel prices will come down quickly if the US gov't stops being a major fuel buyer. Summer driving falls off about the time the SPR is filled but before production is completely ramped up for winter home heating oil. Hopefully, fuel will come down. On the other hand, many analysts have struggled with being able to explain why fuel has stayed as high as it has. Logic doesn't seem to be driving the current price, esp. the high difference between crude oil and jet fuel.
I share your assessmen of DL and NW. I believe that we are at or past the point when airlines can successfully restructure because of the coming winter season. DL may have started just soon enough to have hope but NW just may be too late. I agree that any labor unrest at all could push NW over the edge but I think NW management is asking for so much that labor has no incentive to keep the airline running. It would be unheard of for such a major workforce replacement not to dramatically affect service levels.
I think the bigger issue is whether NW mgmt has decided that their business plan is no longer valid; they were able to grow themselves during the 90s by keeping most of their old airplanes while bringing in new technology. As fuel prices soared, those old planes just are not viable any longer. Even if crude comes back down when the SPR is filled, it is probably very unlikely that it will drop below $40/bbl which still makes old technology planes uncompetitive. The issue NW mgmt has to wrestle with is whether they need to dramatically shrink their airline by eliminating much of that old capacity. That kind of shrinkage almost certainly requires bankruptcy in order to get the costs out. At that point, NW and DL do become pretty compatible and three excess hubs can be eliminated between the two of them while keeping a large enough presence with RJs and some mainline to keep competitors from setting up shop. There is alot more incentive for DL's creditors to help them if they can be convinced that DL will remove some of the least productive capacity from their system and will also gain access to high revenue markets. And DL has aircraft such as the 777 that could be better used to develop NW's Pacific system than where it is presently flying - mostly on the Atlantic.
There are alot of ifs in this scenario but Wall Street seems to know that DL continues to be in talks to get additional financing. The real questions at this point is whether creditors see DL's forecasts as reasonable and if DL mgmt believes they can turn things around if they get the help. We will have to wait for announcements regarding further cash or reduced near-term debt obligations to know whether DL will stay out of BK.
as for the current share prices, Wall Street takes some time to change their thinking on a company. DL's doom and gloom story has been coming for quite some time and there hasn't been enough positive news for them to really see an upside. NWA's stock price drop has not been as dramatic as expected given their mgmts fairly recent decision to address their cost issue - and do it w/ force that could backfire.
by the way, invtrade, what is your relationship to the industry? You seem to have a pretty good grasp of issues from your first couple posts.
 
WorldTraveler,

It is rarely to see some sensible analysis like yours on the web. If you have a chance to visit yahoo chat board under DAL, you will shake your head about the quality of the comments (and the people). A gentleman on the Yahoo board created a competing board in order to control the insanity. I post there from time to time. Fyi and for a good laugh, I've been in this industry for appxo. 12 years. I started out as an aircraft lessor for 4 years and then joined a 'premier' airfinance bank, which then became a 'premier' investment bank. That was when all my career downfall started happening. I left the industry shortly after 911 though I'm trying to keep myself updated. I did not envisioned this round of airline recession to last so long probabily because of the crude price run-up and I would say Jetblue has contributed to this recession as well by breaking the common skeptics that LCCs can not compete successfully in east coast routes. However unlike the previous recession in the early 90s, this one has not liquidated any airlines yet. Does it mean the worst is yet to come ? I hope not.
 
A. J. (Jim) Norby
NRLN President,

"The bill (S.219) will likely not be considered by the full Senate until the Senate Health, Education, Labor and Pensions (HELP) Committee addresses its own version of a bill. HELP Committee action is not expected until after the August congressional recess."



With this news in regard to the Senate Finance Committee's bill, NESTEG S.219, giving troubled airlines 14 years to catch up on pension funding, it doesn't appear to me Sept. 5th a realistic date to file for BK. It does though add uncertainty to the equation and additional questions.

1. Would senate approval likely occur before the Oct. 17 deadline for BK rules changes?

2. Does 14 years give enough financial relief to make it worth while to wait for full senate approval?
 
[ Insp, I am not wishing for US' failure but simply pointing out that US is much less stable than DL and has even less staying power. While HP says the merged airline can work w/ $60 per bbl fuel, it will require a significant amount of money for HP to pull off the merger. I don't honestly think that HP will continue to pour money into US if they cannot be viable in the very near future.


Remember, WT, HP is NOT putting up the money for the U merger, no "pouring" involved...it is OUTSIDE investors who feel, at least so far, that the merged companies would be profitable...even at $60B (which I find hard to believe.) Even HP's CEO stated (though he now probably regrets it) that they would probably be in BK by the end of the year anyway. Really does not have much to do with your discussion about DAL, but since U has proven to be prettey much a Zombie, maybe everyone could lay off the U going first talk. Leo started it years ago and it just has not happend. What happens to DAL now or 6 months from now will have NOTHING to do with what happens at U. A year or so from now, with everyone out of BK....that is the question. Take care, Greeter.
 
Greeter,
actually I see the connection between US-HP and DL. I do understand that HP is not putting up the money to buy US but that it is coming from other investors; I believe this validates that there are investors who are willing to invest in airlines that can take valuable assets such as US has and incorporate them into a larger, more profitable network which is what HP says they will do. Because I have said that DL is much like a supersized version of US, I think they have to be combined w/ a larger carrier to be viable and can only hope that DL mgmt recognizes it early enough to be the acquirer rather than the acquired. It also says that investors view cost control as the highest priority for management; HP has done that better than any other network-type carrier but they have not lead the industry in other operational or financial measures.

Forgive my slights at US; my only reason for continuing to keep US on "deathwatch" is because they really have no ability to continue propping themselves up other than generate cash through the operation. I do believe HP will continue with the transaction but they may be forced to accelerate the "right-sizing" of the US system if fuel prices remain high. It is obvious that HP wants the NE presence plus a southeast hub so everything else could be whittled down pretty quickly if necessary.
US did show good progress in managing in the current environment but you know that has come only on the shoulders of you and your family.
UA has considerably more cash and a lower cash burn rate while NW and DL both have assets and the option of BK that could keep them alive a while longer if need be.
as always, thanks for your contributions.
 
While both DL and NWA are in a race to BK, I believe NWA remains the the stronger of the two. NWA still has the NRT crown jewel. They could shrink the domestic system into MSP and DTW and continue a strong feed across the Pacific. Not to mention a very strong and stable cargo operation.

DAL lacks a crown jewel. Outside of ATL, the system is too weak. While DAL has a nice Europe presence, they're not in LHR. Soon, AMR will blanket DAL from JFK to Europe with the TWA slots and a new Terminal.....built especially for international travel. In fact, AMR has just announced JFK-Newcastle, U.K. with 757 service. As I understand, their will be a lot more JFK/BOS-Europe service with 757s. I just think the squeeze will be too strong on DAL/JFK. CVG and SLC are so-so connecting hubs with marginal O/D traffic. I also think the CMR/ASA situation has become a tremendous liability.

In the end, CAL has EWR/IAH/GUM. NWA has DTW/MSP/NRT. UAL has NRT/SFO/ORD/LHR. AA has SJU/MIA/JFK/DFW/ORD/LHR. DAL only has ATL. I just don't think it's strong enough to hold the entire operation afloat.
 
Forgive my slights at US; my only reason for continuing to keep US on "deathwatch" is because they really have no ability to continue propping themselves up other than generate cash through the operation.


Nothing to forgive. Your posts are some the best on this forum, and I was only picking out a few lines that were of personal concern. Also, sorry about the bad spelling on my last post...I have not been granted an "edit" box today so I cannot correct it. Best. Mark.
 
HGIEFOswitch said:
While both DL and NWA are in a race to BK, I believe NWA remains the the stronger of the two. NWA still has the NRT crown jewel. They could shrink the domestic system into MSP and DTW and continue a strong feed across the Pacific. Not to mention a very strong and stable cargo operation.

DAL lacks a crown jewel. Outside of ATL, the system is too weak. While DAL has a nice Europe presence, they're not in LHR. Soon, AMR will blanket DAL from JFK to Europe with the TWA slots and a new Terminal.....built especially for international travel. In fact, AMR has just announced JFK-Newcastle, U.K. with 757 service. As I understand, their will be a lot more JFK/BOS-Europe service with 757s. I just think the squeeze will be too strong on DAL/JFK. CVG and SLC are so-so connecting hubs with marginal O/D traffic. I also think the CMR/ASA situation has become a tremendous liability.

In the end, CAL has EWR/IAH/GUM. NWA has DTW/MSP/NRT. UAL has NRT/SFO/ORD/LHR. AA has SJU/MIA/JFK/DFW/ORD/LHR. DAL only has ATL. I just don't think it's strong enough to hold the entire operation afloat.
[post="286100"][/post]​
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i think that the airlines are in a waiting game with NW and their mechanics. Will they strike? Probably not and even if they would, I don;t think the current administration would let them. If they strike, i believe that WT is right when he/she predicts some sort of merger with NW. Hell, my brother is a mechanic and thinks the same thing. All of us at DAL know that we need the far east and bigger O&D hubs and I believe consolidation is one way to get it. Do I think DAL will be the surviving carrier? Not sure but what I do know is that we are chopping costs everywhere and like WT says, that means something to potential investors. Our mainline casm ex fuel last quarter was 7.11 cents. We shall see..
 
switch,
DL's lack of "crown jewels" may imperil DL's long term future but it doesn't have any bearing on whether DL will survive the next few months. In fact, DL has never had any crown jewels but has managed to successfully acquire a number of airlines over the past five decades. What will determine whether DL can stay out of bankruptcy in the next few years is whether it can get costs down low enough to convince new investors as well as its current creditors that it is a reasonable credit risk. It is almost certain that DL has to restructure its near term debt and obtain operating cash to tide it through the crisis. Despite waiting years to get serious about restructuring itself, DL has made remarkable progress and could credibly argue that it knows how to run its business. Creditors would far rather work w/ a company that has a viable business that is being properly managed than push that company into a costly bankruptcy in which DL could choose to significantly restructure the business or sell itself to another airline, limiting the likelihood that those creditors would receive anything close to what they are owed, even years later.
 
Fears of bankruptcy at Delta Air Lines have increased dramatically in recent days, with the credit derivatives markets reflecting a better than 70 per cent chance that the third-biggest US carrier will declare bankruptcy within 12 months.

Shares in the Atlanta-based carrier plunged to their lowest level in more than 40 years last week. The new low came just days after Gerald Grinstein, chief executive, warned in a letter to employees that Delta’s efforts to secure $5bn in cost savings by the end of next year might not be enough to avert a Chapter 11 filing.

Based on Friday’s prices, credit default swaps are reflecting a 70-80 per cent chance that Delta will file for bankruptcy within one year, according to analysts at two prominent trading houses.

But one airlines analyst said there was still a chance for Delta to avoid bankruptcy if it could quickly secure additional liquidity, labour concessions and lessen its debt load.

“[Delta] have to raise liquidity through capital raising and asset sales, and they have to do debt for equity exchanges,â€￾ said the analyst. “But it’s very tricky and its going to be difficult to execute.â€￾

Most analysts say any decision about whether to file for bankruptcy is probably several weeks away. US Airways, the bankrupt US carrier, was reported to have won the support of its committee of unsecured creditors for a bankruptcy restructuring plan that includes a merger with America West Airlines.
Click to expand...

Fears growing over Delta bankruptcy
 
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