Delta's Restructuring Proceeding As Planned

[WorldTraveler]

Item 1
Today, Delta obtained $600 million dollars in financing from business partner American Express. The majority of the financing is advance revenue for miles that Amex would be buying from Delta anyway so this is essentially only an interest only loan which has been given priority over other financing in the event of bankruptcy (helps to push the unsecured debtholders along since their claims get pushed even farther down).
http://biz.yahoo.com/prnews/041025/clm077_1.html

Item 2
Delta was able to push back $135M in debt by a couple years for a slight interest increase and Delta stock. Not exactly something one would accept if bankruptcy seemed imminent.
http://biz.yahoo.com/prnews/041025/clm093_1.html

Item 3
Pilot deal appears imminent - based on a $1B concession package (there is no room for fudging because that amount is written into a whole bunch of other agreements).
http://yahoo.reuters.com/financeQuoteCompa...25213223_newsml

Item 4
Delta signs marketing agreement with Alaska, Horizon which could lead to codesharing that could allow Delta to restart Pacific service from the NW.
http://biz.yahoo.com/prnews/041025/clm075_1.html

This is looking as sweet as a Red Sox dominated World Series!

We'll be back for tomorrow's round of news. I'll be looking for a bottle of champagne from each of the naysayers.

 

[Flufdriver]

World....the way I see it...until DAL buries that 21-22B in debt somewhere and get the CASM somewhere around 7-8 cents, maybe even lower all carriers including DAL will continue to lose money. Showing this and proving it to the creditors is the tough part. Hanging around 9.5 cents will still prove costly even though AMEX hung themselves out with a little cash. At DAL's burn rate that will only last about 120 days! Don't pop the cork on that bottle of bubbly yet!!

 

[WorldTraveler]

Fluf,
If you take $2B off DL's costs for last year and you'll see that DL's CASM at that rate will be well south of 9 cents - far lower than any other legacy even if a 10% dilution in yield is assumed.
Given that DL's pay cuts will take effect Jan 1 (non-contract was specifically set to start that date in order to coincide w/ the effective date for the ALPA contract), Delta's costs will start coming down Jan 1.

Don't forget that DL has already closed on the M11 sale so there is another couple hundred million in the coffers and the Orbitz sale is expected to close this quarter. The Amex deal is apparently designed to provide the first tranche of funding very soon. And keep in mind that AA had less cash at this point in its turnaround that DL does now.

Yes, I will wait until tomorrow or Wed when all those press releases come out to pop the cork but I have asked the fat lady to start tuning up.

Oh - and who knows how long US can hold on.

 

[mistified]

Fluf,
And keep in mind that AA had less cash at this point in its turnaround that DL does now.
Yes, I will wait until tomorrow or Wed when all those press releases come out to pop the cork but I have asked the fat lady to start tuning up.
Oh - and who knows how long US can hold on.

[post="194874"][/post]​

Traveler
I admire your optimism. However DAL today is not the same as AA 18 months ago.
One of the big differences is that DAL needs more players than just the employees to play ball. Or at least to a much greater extent. AA had the luxury of being able to put most of the burden on their employees (1.8 billion) and only a small part on outside vendors(200 million). Also 18 months ago fuel was not at $53 per barrel. US and UAL were not as big a drag on the industry as they are now. In short; it's a much more dense minefield now days. But don't mind me, just repeat what I read on the outside.
All that being said, it does not mean that it's impossible for them to pull it off.
And since your an employee and have some stock in the company I think its important to be as optomistic as you can.

 

[Just Plane Crazy]

And all of this will not prevent (save) Delta to file for Chapter11.

 

[WorldTraveler]

mistified,
Forgive me if I don't follow the pessimists on Wall Street. You'll notice that JP Morgan's Jamie Baker quickly reduced his view on the likelihood of DL filing bankruptcy to 30% from 85% based on the "unexpected" obtaining of Amex financing. Management's job is not to proceed into oblivion as everyone expects but to come up with create alternatives to ensure Delta's future. Keep in mind that the analysts who hung Delta out to dry just days ago aren't exactly going to say everything is ok when pilot and debt deals are obtained. One of the fools at the street.com was saying that Delta would not obtain a pilot deal just as the dispatcher deal was being announced. Delta's stock, however, was up another 20% today.

Late today, Delta announced that it received an agreement with its dispatchers who are paid like pilots but there are alot fewer of them. You'll also remember that US' dispatchers were the first to sign a wage concession deal and were followed quickly by the pilots.

I'm fully aware that the environment today is extraordinarily challenging. I'll also remind you once again that DL still has more cash in the bank than AA did on the day it obtained concessions from its labor groups. And I'm not sure that I would consider AA's ability to extract most of its cost cuts from labor an advantage; remember that it has taken every bit of the past 18 months to get those employees back on board and many still are upset.

Yes, fuel is high and the competitive environment is extraordinarily intense but it is exactly those factors which will push one or two airlines over the edge. Delta will be positioned to not be one of them and pick up passengers and revenue. And the cash promised and on hand is sufficient to carry Delta through the winter under the worst of situations.

As for debt, Delta's restructuring plan is fully built around a realization that Delta will be servicing large amounts of debt for a number of years to come. While not ideal, if DL can get other costs down to compensate for their debt service costs, they certainly can expect to be viable.

The debt exchange closes at midnight so we may not hear about the debt deal tonite. As I've said before, the pilots union will come to a deal because they will not be caught dead in bankruptcy court without a deal where Delta can ask for even more.

 

[Fly]

Note: Mental Stability :blink:

KNOWLEDGE: 05
MENTAL STABILITY: 04
TACT: 03
TOUGHNESS: 10
VIGILANTISM: 07
DETERMINATION: 08
EFFECTIVENESS: 08
POPULARITY: 10
FASHION SENSE: 00
QUOTABILITY:
"OH, YEAH!" 10
SUPER RATING: 65


--------------------------------------------------------------------------------

(note "Fashion Sense". Fly is starting to suspect that our buddy is a pilot) )

 

[WorldTraveler]

That's SO mature, FLY.

The fact that I have nailed every aspect of Delta's restructuring so far demonstrates a fair amount of business knowledge - not to speak of mental stability.

BTW,
How's United going to be affected by AirTran's MUCH bigger presence on the Chicago scene?

 

[Fly]

No idea. I'm just seriously worried about the FACT that you are obsessed with a COMPANY!!!! (especially when you DON'T work there)

As far as Delta is concerned....do I want them to go BK? (no friggin' way.....have some seriously personal reasons that I'd prefer they don't) At least I have something to lose if they do, but you don't see me bombarding airline forums trying to sway people to my belief.

 

[DLFlyer31]

Late today, Delta announced that it received an agreement with its dispatchers who are paid like pilots but there are alot fewer of them.

[post="195132"][/post]​

Dispatchers are paid like pilots?????

You might want to do a little research on that. While dispatcher pay at a major like DL is reasonably good, it's nowhere near most pilots. A dispatcher at DL might fall somewhere between 60-100k. Most DL pilots are above 100k (for now).

Your optimism is admirable especially given DL's state. My concern is that DL has really mortgaged itself into oblivion. Sure, the cuts they are getting will probably allow DL to stay alive, but can DL also thrive and grow with such a huge albatross of debt hanging around its neck??

DL has a huge list of capital improvement items that will have to be addressed in the next few years. Look at a few of the items:

-DL needs a 100 seat aircraft to replace aging 732's and also upgrade some RJ routes.

-DL needs additional 777's to allow for international expansion.

-Assuming DL wants to remain a major player in JFK, they need to invest serious money in the terminal. The $300 million DL is spending on A/C and bathroom renovations is a waste, the whole building needs to be knocked down. If DL doesn't get its act together in JFK, AMR, JetBlue and Continental will blow DL out of the NYC market.

-DL needs to overhaul its product. They have started this process, but I think they are taking the cheap route. The new MD88 interior is cheap and trashy looking. Eventually, DL will also need to consider PTV's for the entire fleet.

Finally, how well positioned will DL be to weather another downturn. As bad as things may be now, it could be a lot worse. What happens if the economy slips into another recession? Is DL's restructuring going to make DL a long-term survivor or will DL continue to tread water until the next big fall.

 

[WorldTraveler]

As I have said before, I post on this forum because I believe I understand this business and Delta and have tracked Delta since I was a teenager (well before deregulation).

I have been most vocal in my postings lately because the chorus predicting Delta's downfall has been so loud. I happen to not be afraid of making my own path and going against the popular opinion.

Understandably, a lot of Delta employees are very nervous about the whole situation and have also come to expect that a bankruptcy filing is inevitable. I am here to encourage them that Delta will not only survive and thrive, but can restructure itself outside of bankruptcy. As I've pointed out before, I appear to be one of the few non-employee posters who understand Delta. Every other airline has those types on this board; I have appointed myself to that position on the Delta forum.

Once Delta has stabilized and crisis moves on to another airline, I'll add my comments there. My loyalties, however, will always belong to Delta.

 

[luv2fly]

-DL needs to overhaul its product. They have started this process, but I think they are taking the cheap route. The new MD88 interior is cheap and trashy looking. Eventually, DL will also need to consider PTV's for the entire fleet.

[post="195158"][/post]​

What is it about the new interiors that you do not like? I have seen them and consider it to be a vast improvement.

 

[Fly]

My loyalties, however, will always belong to Delta.

[post="195160"][/post]​

That's weird!!!!!!

 

[WorldTraveler]

DLFlyer31,
I almost thought you were right on with your assessment of DL's needs until I read that you think DL needs PTVs at every seat. Is this airliners.net? There is a fairly small percentage of the population who enjoy live TV at every seat. Personally, I have no interest in watching TV or any other entertainment on most of my trips. I believe AA is doing the right thing by adding power ports at every seat and I expect DL will do something similar. I do think they will offer some sort of entertainment option but it may not necessarily be live TV. Have you ever watched TV during the day? It's bad enough at night, let alone during the day. Give me my laptop, my DVD player, or a good book and some peace and quiet for writing.

Yes, I agree that DL's debt costs are large and will remain a significant drain on Delta's earnings. However, DL's business plan has been developed with the intention of paying that kind of debt payments. Remember also that DL has very little capital expenditures on the books and none for the next couple years. Airlines can easily generate several billion dollars in free cash flow - more than enough to pay current debt plus wittle down other debt. Delta has been making the better part of $1B in debt payments for each of the several years. Not a position I would want to be in but it probably doesn't look that much different than alot of American consumers (in proportion).

I agree that DL needs a 100 seat airplane and I suspect that part of the pilot deal involves incentives to buy one. Relatively speaking, large RJs are relatively inexpensive compared to most of the aircraft the legacy carriers buy. A billion dollars worth of RJs is a fairly significant size fleet - and DL will likely order several billion worth.

I believe that Delta's greatest challenge going forward is not financial but the lack of international routes compared to other legacy airlines and the much higher percentage of revenue that is derived from domestic routes (DL is 2nd lowest in % of int'l revenue behind US). Further, DL has virtually no available international aircraft and none for delivery in the next couple years. Given that DL's international long-haul routes are almost entirely to Europe, I fully expect that DL will very quickly generate cash and then involve itself in an acquisition of another airline that it can use to further its international presence in Asia and Latin America. I'll say more on this once a pilot and debt deal is done.

DL is vulnerable as long as fuel remains at sky high levels and revenue remains weak due to hyper competition. As has been seen many times in this industry, a debt restructuring, cost cuts, and cash infusion are usually enough to keep that airline above water until things either change for the better or a competitor or two drops out. Given that US is probably the most vulnerable legacy and Independence is significantly eroding fares for all east coast carriers without improving anyone's fate, failure of either of those two will certainly help Delta. Further deterioration of US or a bankruptcy by DH will surely result in reduced fleet sizes for both of them - to Delta's benefit.

I have my eyes wide open about the challenges facing Delta but that doesn't mean they are not capable of overcoming them.

 

[WorldTraveler]

Mme Fly,
Do you have loyalties to anything or anyone? Maybe you don't understand the concept.