IAG - Aviation and Travel Industry News

[USA320Pilot]

Delta's plan

Delta came out with its own plan to emerge from Chapter 11 today. It is full of information and even has a funny exclusion - "The figures don't include an executive compensation package, which the airline says would be added later." Now why would that be excluded you ask? (You should ask this now and again at the end of this story)

Here's the essence of Delta's plan:

- A valuation between $9.4bn and $12bn. That’s a 20% spread and is 10-30% higher than the existing US Airways bid. On what grounds is that valuation being made? Its the first a few odd items. Advantage US Airways.

- Delta offers no cash payout to creditors. Which is odd because you would think creditors have been burned and want cash which is why US Airways is offering some cash. Advantage US Airways.

- The blueprint for a new Delta is an all-equity valuation with no cash payout to creditors, who would receive a return of 63% to 80% of the current value of their claims. How is this calculated? Is it based on the inflated stock valuation (due to the US Airways bid)? Advantage US Airways.

We expect Wall Street to tear this deal apart and compare it with the US Airways offer. So far it does not look good for Delta. We think Delta's plan seems rather weak particularly since there's no cash to creditors. If this demonstrates Delta has no cash to use, that should tell the story right there. Because you would think that with lower fuel costs and an eviscerated cost structure under Chapter 11 would have generated buckets of cash. Where is that money?

See Story

Regards,

USA320Pilot

 

[NYCDelta]

Delta's plan

Delta came out with its own plan to emerge from Chapter 11 today. It is full of information and even has a funny exclusion - "The figures don't include an executive compensation package, which the airline says would be added later." Now why would that be excluded you ask? (You should ask this now and again at the end of this story)

Here's the essence of Delta's plan:

- A valuation between $9.4bn and $12bn. That’s a 20% spread and is 10-30% higher than the existing US Airways bid. On what grounds is that valuation being made? Its the first a few odd items. Advantage US Airways.

- Delta offers no cash payout to creditors. Which is odd because you would think creditors have been burned and want cash which is why US Airways is offering some cash. Advantage US Airways.

- The blueprint for a new Delta is an all-equity valuation with no cash payout to creditors, who would receive a return of 63% to 80% of the current value of their claims. How is this calculated? Is it based on the inflated stock valuation (due to the US Airways bid)? Advantage US Airways.

We expect Wall Street to tear this deal apart and compare it with the US Airways offer. So far it does not look good for Delta. We think Delta's plan seems rather weak particularly since there's no cash to creditors. If this demonstrates Delta has no cash to use, that should tell the story right there. Because you would think that with lower fuel costs and an eviscerated cost structure under Chapter 11 would have generated buckets of cash. Where is that money?

See Story

Regards,

USA320Pilot

No, what's odd is that someone who is smart enough to fly an airplane, isn't smart enough to see what a mess this merger would be and would provide no real benefit to ANYONE except executives.
Regards,
NYCDelta

 

[BoeingBoy]

No, what's odd is .....

No, what's really odd is that something gets said by one of the "experts" and every reporter with a word processor repeats it as fact.

Fact - per the POR, the bulk of the dollar amount of claims held by creditors will be paid in cash. Only the general unsecured creditors will get nothing but stock. There's quite a number of them, but the dollar value of their claims is relatively minor.

Jim

 

[Gilding the Lily]

No, what's really odd is that something gets said by one of the "experts" and every reporter with a word processor repeats it as fact.

Fact - per the POR, the bulk of the dollar amount of claims held by creditors will be paid in cash. Only the general unsecured creditors will get nothing but stock. There's quite a number of them, but the dollar value of their claims is relatively minor.

Jim

Jim,

I wouldn't necessarily say that $13,027,064,164 is relatively minor. That is the amount of unsecured claims scheduled. Of that amount, only $281,045,333 has been disallowed to date.

 

[abe]

We expect Wall Street to tear this deal apart and compare it with the US Airways offer. So far it does not look good for Delta. We think Delta's plan seems rather weak particularly since there's no cash to creditors. If this demonstrates Delta has no cash to use, that should tell the story right there. Because you would think that with lower fuel costs and an eviscerated cost structure under Chapter 11 would have generated buckets of cash. Where is that money?

I would expect a little more research from you on this one, USAPilot. If you had bothered to listen to the 8:30am webcast, you would have known that these "bloggers" are uninformed.

In a nutshell, Delta will exit with 2.5B in unrestricted cash along with 1B in restricted (which is not included in the POR).

As far as the "cash to creditors" debate, this was addressed as well in the same presentation.

Bastian (CFO) states that this is the "first draft" of the POR and that ongoing discussions with the creditors committee, as well as market response, will provide guidance for the final draft.

Jerry states that the creditors who would get cash from Parker's plan realize that they won't have it in their hands until the deal takes place...roughly 18-24 months from now (versus 5 months for the stand alone plan). And that is if (a BIG IF) Parker's plan can make it through the many hurdles ahead (gov't regulators, judge, etc).

As to the valuation, the question I would ask Parker is how did he arrive at his number without any due diligence into Delta's books?

Delta management has been smart about this today:

1. They've shown the world the strides that have been made over the last 15 months.

2. They've offered a viable alternative to Parkers plan for the creditors to chew on.

3. They've realistically addressed the big hole in Parker's plan (which he has failed to do).

Let the games begin!


Abe
(Parker's plan calls for 23 Billion in Debt....YGTBSM!!)

 

[BoeingBoy]

Oops - you forgot the $1,379,608,133 in unsecured claims against Comair and affiliated debtors, of which only $32,153,039 has been disallowed.

but while $13 billion (or $14 billion) may not be relatively minor to you or me (at least to me), compared to the roughly $86 billion in claims listed, it's relatively minor.

Did you notice the $57,675,400,206 in priority tax claims that'll be settled with CASH according to the POR? Wonder why I occassionally correct the "creditors will get no cash with DL's plan" statements?

Jim

 

[Cosmo]

Did you notice the $57,675,400,206 in priority tax claims that'll be settled with CASH according to the POR?

Jim:

While I don't doubt that you copied the above figure correctly from Delta's POR, where the hell will Delta get $57.675 Billion (yes, that's "Billion" with a "B") to pay these priority tax claims in cash? I may not be the sharpest tool in the shed, but on its face this seems to be impossible for Delta to do, no matter how many investment banks and hedge funds pony up some cash on the carrier's behalf. And even if Delta could make this massive cash payment, wouldn't that simply translate into an additional $57.675 Billion in post-emergence Delta debt? I freely admit that I'm really confused about this, and any further explanation that you can provide would be greatly appreciated.

Cosmo

 

[USA320Pilot]

If Delta was so sure about its stand-alone plan then why would its CEO need to meet with politcians to gain support?

If Delta has so much confidence in its :formal reorgaization" then why beg for politician support?

See Story

What I find interesting is the amount of energy Delta's mamangement team is expending on discrediting US Airways, versus braggin about their own stand-alone plan. Does this seem a little unusual or is this just me?

As I indicated before, today is just the beginning of the hostile takeover attempt. It will be interesting to see what appears in the WSJ tomorrow morning.

Regards,

USA320Pilot

 

[abe]

If Delta was so sure about its stand-alone plan then why would its CEO need to meet with politcians to gain support?

If Delta has so much confidence in its :formal reorgaization" then why beg for politician support?

See Story

What I find interesting is the amount of energy Delta's mamangement team is expending on discrediting US Airways, versus braggin about their own stand-alone plan. Does this seem a little unusual or is this just me?

As I indicated before, today is just the beginning of the hostile takeover attempt. It will be interesting to see what appears in the WSJ tomorrow morning.

Regards,

USA320Pilot

Probably for the same reasons that Parker has met with several leaders on Capital Hill in the last month. (You'll have to ask him about his meeting with Johnny Isakson last week...I heard that it was a trip!)

By the way, on the topic of executive compensation that you brought up earlier, your bud Kirby and Parker aren't doing too shabby in that department!

http://finance.yahoo.com/q/it?s=LCC

Looks like 8 million or so for Kirby and a cool 12 million for Parker in 2006....Not bad!!

What does Kirby do again?? Whatever it is, I hope he gave you 8 million dollars worth this year.

I hope he at least pays for dinner when you two go out....


Abe

 

[longing4piedmont]

As to the valuation, the question I would ask Parker is how did he arrive at his number without any due diligence into Delta's books?

According to doogie, from information gleaned from DL's web site. I just hope he took note of the fact that DL's website actually works and doesn't crash every other minute or so like US's does.....

 

[luv2fly]

If Delta was so sure about its stand-alone plan then why would its CEO need to meet with politcians to gain support?

The better question would be, why wouldn't they? DL has made it abundantly clear to everyone, except Parker, that it is not interested. Just as US has vowed to continue this war, DL is enlisting all the help it can get to fend it off. I see nothing wrong with it at all.

If Delta has so much confidence in its :formal reorgaization" then why beg for politician support?

I think that most of the politicians to date have voiced their own concerns. Concerns that Parker has alluded with his mysterious yet to be determined synergies.... oops, I meant dis-synergies.

See Story

What I find interesting is the amount of energy Delta's mamangement team is expending on discrediting US Airways, versus braggin about their own stand-alone plan. Does this seem a little unusual or is this just me?

Just you I am afraid. It appears to me that Delta presented its POR. That POR detailed its recovery plan as well as the shortcomings of US's speculative plan. Exactly what it should have done. It reinforced the monumental hurdles Parker's plan entails

As I indicated before, today is just the beginning of the hostile takeover attempt. It will be interesting to see what appears in the WSJ tomorrow morning.

Yes, it will be interesting to see just how much Doug is willing to leverage US Airways. 23 Billion in debt and climbing.

Regards,

USA320Pilot

 

[BoeingBoy]

Jim:

While I don't doubt that you copied the above figure correctly from Delta's POR, where the hell will Delta get $57.675 Billion (yes, that's "Billion" with a "B") to pay these priority tax claims in cash?

The short answer is they won't.

The long answer is that that number will be reduced considerably through negotiation and/or the judge's actions. Remember that the $57 Billion is the total of filed priority tax claims (there's been minor reductions that I didn't bother to figure in and I've since closed that browser window). Many of those claims, as in every big BK case with multiple debtors, are filed against several of the debtors - hence multiple duplicate claims.

As all that is sorted out, the $ amount of claims that are actually paid will drop considerably.

US is still settling some of these over a year after exiting BK.

Jim