Delta Cost-cut Plan Doesn't Allay Bk Conce

[Fly]

Updated: 01:41 PM EDT
Delta Cost-Cut Plan Doesn't Allay Bankruptcy Concern

By Elizabeth Souder, Of DOW JONES NEWSWIRES, Dow Jones

NEW YORK (Dow Jones)--Delta Air Lines Inc. (NYSE😀AL) (DAL) Chief Executive Gerald Grinstein plans to chop another $2.7 billion in costs in the next two years by cutting up to 7,000 jobs and rejigging the airline's network.

Analysts say the idea of improving efficiency in order to operate more flights with fewer employees will probably keep the loss-making Atlanta carrier flying. But it won't keep the airline out of bankruptcy court.
You can read the whole article here.





Guess analysts and people really in the know don't agree with cheerleaders like WorldTraveler, huh?

 

[luv2fly]

Guess analysts and people really in the know don't agree with cheerleaders like WorldTraveler, huh?

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These the same type analysts that predicted the following about AA?


By ERIC TORBENSON / The Dallas Morning News

Financial results at American Airlines Inc.'s parent, AMR Corp., have fallen nearly $1 billion short of turnaround projections over the past year, raising the possibility that existing labor concessions may not be enough to sustain profitability.

Fort Worth-based AMR had presented the forecast to its unions last year, when it was faced with the prospect of bankruptcy. Labor groups contributed $1.62 billion in annual wage and benefit concessions to keep the company solvent. The largest share – $660 million a year – came from American's pilots.

Even with the lower-cost contracts in place since last May, the airline's results have fallen $1 billion behind its turnaround plan, according to John Darrah, president of the Allied Pilots Association.

High fuel prices may increase the shortfall to $1.8 billion by year's end, he said in a farewell note to 12,000 pilots last week.

"Granted, there are many variables that have impacted these results," Mr. Darrah wrote to pilots in a 5,366-word letter defending his actions that resulted in the new contract. He listed the war in Iraq, severe acute respiratory syndrome and increased fuel costs as key problems the airline has faced.

Mr. Darrah didn't run to keep his office and has been replaced by Ralph Hunter, who was a key negotiator on the concessionary contract.

"But even if we were to account for these influences, AMR's financial results would still not meet the goals identified in their restructuring plan based on the model from which we based our concessions," he wrote.

The airline acknowledged that its results haven't matched earlier projections.

"We were aggressive with our forecasts last spring to assure employees that we were asking for the minimum the business needed to survive," said Tim Wagner, spokesman for the carrier.

But the carrier hasn't signaled a need for more concessions.

At the AMR annual meeting in May, chairman and chief executive Gerard Arpey said the carrier didn't intend to ask employees for more givebacks. Instead, Mr. Arpey wants continuous cost-cutting from all parts of the company.

Still, the carrier's finances remain a concern.

AMR will announce its second-quarter earnings July 21, and analysts expect a result close to break-even. The company lost $166 million in the year's first quarter after losing more than $6.4 billion in the previous three years combined.

The world's largest carrier needs to do more than show modest profits. Despite having $3.7 billion in cash and short-term investments in the bank, the carrier's balance sheet remains debt-laden.

In presentations to the pilots' union and other unions last year, American said it would need to return to pretax profit margins of between 7 percent and 10 percent in order to make enough money to keep up with debt payments and lease obligations that together exceed $22 billion.

American has done a lot to reduce costs, but has far less control of its revenue as low-fare carriers continue to expand into American's bread-and-butter transcontinental routes. Its average fares have dropped more than 20 percent in some cases as JetBlue Airways Corp. and America West Airlines Inc. have flooded long-haul routes with new flights.

That weakened revenue outlook has some analysts down on AMR. Lehman Bros. analyst Gary Chase lowered his estimate to a loss of 40 cents per share from a break-even estimate earlier, blaming lower-than-expected revenue and little chance that average fares will rise even with the improving economy.

Fuel prices are the other enemy to American's financial performance. The carrier said its jet fuel costs would be as much as $700 million higher this year than during 2003, a figure that comes right out of the bottom line.

In his note to pilots, Mr. Darrah said that, although painful, the cuts American pilots took could have been much deeper and were unquestionably preferable to bankruptcy.

At United Airlines Inc., pilots face the prospect of having their pension plan terminated as the carrier tries to emerge from Chapter 11 bankruptcy.

And published reports Tuesday suggest Delta Air Lines Inc. wants $1 billion in annual cuts from its pilots, who now earn 40 percent to 60 percent more than comparable American pilots. Like American last year, Delta is struggling to avoid bankruptcy and needs to reduce its industry-leading pilot costs.

"Without fundamental changes from management, your leadership realizes that American Airlines may still not survive long term in its present form," Mr. Darrah wrote.

American continues to experiment with its operations, and while many changes are on the drawing board that would save the carrier money, they haven't yet trickled down to employees, said Denis Breslin, chairman of the communications committee for the pilots union.

"They've got a good plan in place, but it's just slow to take off," Mr. Breslin said. "We just want it all to happen right now."

AMR shares fell 44 cents to $11.45 in light trading Tuesday.

 

[WorldTraveler]

Ms. Fly,
Of course, what Delta revealed today won't keep the airline out of bankruptcy. I made it clear in my topic starter that DL explained only the revenue side of the equation today. The cost side still has yet to be determined - largely by pilots and bondholders, which in turn will translate into specifics for non-contract employees and vendors. Given that Jerry has not put a 21 day clock in motion, this foot dragging nonsense by ALPA will come to an expeditious conclusion in very short order.

It's nice to show that AA and DL lost ground on the big board, but so did the market as a whole. As for AA, I don't think AA ever said they were through refining their operation, although they were probably too casual in saying a year and a quarter ago that they had the right solution in hand. Mr. G. was very careful today to say that DL isn't approaching the cost cuts outlined today as the last and best. However, $2.5B in additional cost cuts should put DL clearly in $1B/ year plus in annual net profits and that is before any gain they might hope for from a US shutdown.

I'm no blind cheerleader of anything. I am capable of sorting through the media barrage and financial mumbo jumbo and seeing what is really happening; I do believe that DL is doing what it will take to turn that great company around. I have no problem if any other company wants to join them, including yours.