Delta Hires Blackstone Group

[WorldTraveler]

With all due respect, Delta and United are entirely different companies. United was a disaster waiting to happen and that was apparent from their financial statements months in advance. Delta mgmt and industry analysts have said for months that Delta is capable of generating the cash necessary to pay their obligations until about early 2005, a date which has undoubtedly been moved much sooner because of fuel but which there has been no updated cash flow statement from Delta. Delta has deferred aircraft deliveries and as many other cash flow drains as possible until they get a competitive pilot agreement.


Fubi and luv,
I'll ask you the same question I asked the elusive NHBB. Why would any rational company file for bankruptcy just to abrogate labor contracts if they are capable of paying their obligations? Answer: they wouldn't and certainly not if they are an airline where the survival rate is very small.
Now, explain to me and the rest of the world why you think Delta would accept an offer from the pilots and then turn around and file for bankruptcy when the $1B in annual concessions Delta is asking for would get them to a break even position based on the past several years of financial performance and based on Delta's costs in every other sector of their business.
Pushing Delta into bankruptcy is asking them to slit your throat and drain your blood when the alternative is a much more tolerable blood donation.

 

[mweiss]

Worldtraveler,

I think the problem is that people in the industry see what happened at US and UA and assume that it's endemic.

 

[luv2fly]

Fubi and luv,
I'll ask you the same question I asked the elusive NHBB. Why would any rational company file for bankruptcy just to abrogate labor contracts if they are capable of paying their obligations? Answer: they wouldn't and certainly not if they are an airline where the survival rate is very small.
Now, explain to me and the rest of the world why you think Delta would accept an offer from the pilots and then turn around and file for bankruptcy when the $1B in annual concessions Delta is asking for would get them to a break even position based on the past several years of financial performance and based on Delta's costs in every other sector of their business.
Pushing Delta into bankruptcy is asking them to slit your throat and drain your blood when the alternative is a much more tolerable blood donation.

Fubi and luv,
I'll ask you the same question I asked the elusive NHBB. Why would any rational company file for bankruptcy just to abrogate labor contracts if they are capable of paying their obligations?

You are correct. They wouldn't, and they couldn't. Who ever said DL is capable of paying their other debt obligations?

Now, explain to me and the rest of the world why you think Delta would accept an offer from the pilots and then turn around and file for bankruptcy when the $1B in annual concessions Delta is asking for would get them to a break even position based on the past several years of financial performance and based on Delta's costs in every other sector of their business.

The figure I have seen on the company's concessionary contract was placed around 600 million annually. Not exactly a break even position based on past years performance. There has never been any proclomation by the company that DL would have, or will break even if such a concessionary contract is approved. And Jerry would be a fool to make such a gaurantee.
In fact, at numerous road shows, the focus has largely been on DL's long term debt and pension obligations. I believe one of the larger benefits DL would stand to gain from pilot concessions would be greater flexibility in the credit market.

 

[WorldTraveler]

Delta mgmt and most analysts believe that Delta is capable of paying its debt and pension obligations if the company were able to at least break even on an operating basis. Airlines do generate significant amounts of cash which can be used to pay down obligations and is the real barometer (not necessarily net profits); UAL has been generating cash for several months and could limp along but like Delta has very significant debt and pension obligations due in the next couple years. Delta has also said they are in the process of pushing through a number of other cost saving ideas so it is conceivable that the $1B number is probably not far from reality with the pilots contributing a big portion of that and which has not been factored into any business plan.

Yes, a pilot agreement would dramatically enhance Delta's credit rating since, again, any pilot agreement is not factored into any financial projections. Since a significant portion of DAL's debt is due in the next 2-3 years, esp. the unsecured portion, if they want to file bankruptcy now is the time. If they get a pilot agreement and keep paying down their debt, they will be in a very good position in the 2006 period and forward. Continuing to threathen bankruptcy does nothing for one's credit rating, however.

Mweiss,
in terms of high costs in the industry, yes it is endemic. The business models at all of the legacy carriers is similar. The difference is that U and UAL were unique in the risk they took and the lack of financial acumen their mgmt took in the light of a very difficult financial outlook. DAL and AMR, and more recently NWA and CAL, have been characterized by very astute financial mgmt that is capable of understanding the industry's finances and developing a business plan that is capable of adapting to it. In that sense, U and UAL are not representative of the industry. The need for a dramatic change in the business plan and their high costs are, however.

 

[novaqt]

The reason for bankruptcy is not just the pay cuts, but to reorganize and secure work rule changes for pilots and other employee groups and to renegotiate high-priced aircraft, rents, vendor, and airport leases. Pay cuts are only one third of the equation. In bankruptcy, everything is on the table that might very well necessitate the closing of some unprofitable bases. Good Luck Delta.

 

[magsau]

"United got the pilot concessions and went into BK anyway"

Fuji,

The concessions we took at UAL came AFTER the BK filing. It was the decision to accept 30% (minimum, much more for the 747 and A320 pilots) work rule changes and other cuts as negotiated by ALPA or the ruling by the Judge in an 1113 process.

If you look at AA. Their pilots took the cuts prior to a BK filing. Perhaps staving off the CH11. Only time will tell.

Good Luck. BK sure does suck and I am ready to get out anytime.

 

[mweiss]

in terms of high costs in the industry, yes it is endemic.

Agreed. However, I was referring to the "give concessions and they file 11 anyway and get more" scenario.

 

[WorldTraveler]

Novagt,
Delta has said that they are paying "only" a couple hundred million over market on airplane leases, far less than other carriers have had going into bankruptcy. Delta hasn't invested in costly new terminals in recent years and only has the BOS and JFK projects on the table - both of which are worth well less than a billion bucks with JFK commitments stretched over several years and probably would have been necessary even if DL left JFK and wanted to sublease the terminal to someone else.

Mweiss,
you are correct in that UA and US seem unable to find the business model that works for them. Delta and AMR seem far more likely to to get it right the first time.

Piney,
DAL hired people who they knew would get the job done. With a couple of billion dollars in debt payments due in the next couple years, DL's primary focus is on pushing back those debts (much of which is unsecured and would likely be wiped out in BK) and in getting pilot costs down. Hiring Blackstone says you are dead serious about change, a message Delta wants the pilots and several bankers to get.

 

[Vikedog64]

That was my point.

Isn't the pilots that are taking their early retirement doing the same thing? The way I see it, they are 'taking the money and running' also..

 

[luv2fly]

Isn't the pilots that are taking their early retirement doing the same thing? The way I see it, they are 'taking the money and running' also..

No it isn't. Those pilots have put in 20+years with Delta airlines. How long was Leo here, and how many years seniority was he given? Plus, I don't know of any pilot leaving with a 16 million dollar pension . I would say there is a huge difference, but it you want to believe it is the same thing, go right ahead.

 

[Fly]

Delta and AMR seem far more likely to to get it right the first time.

Delta looks pretty primed to enter the fun bk battle too.

 

[WorldTraveler]

You should note that Delta is heading down exactly the road AMR went down a year ago. AA is now the best positioned of the legacies by most analyst's reckonings. I honestly see no reason why the pilots or any creditor will allow this to go to bankruptcy. Unlike AA, DAL only has the pilots to deal with among labor so once this has past, DL should be set for much smoother sailing.

 

[flyhigh]

One thing to note as well is that what allowed AA to renegotiate many of their agreements was the ability to lower employee costs. Creditors wanted to see the business being put in order before they give up anything. For them, they look at the value of the short vs. long term gains. If they don't see a sound business plan (in this case, competitve employee productivity based on pay and production) they charge higher rates knowing that the only way to make the money is in the short term. Conversely, if they see a company restructure its cost equation to a more competitive model, they are far more willing to renegotiate leases, etc. assuming that the business will have logevity and thus they can collect the same amount over the long term. Where they win by doing this is in not having to maintain the aircraft and find a new leasor when a company fails (thus reason to accept lower rates).

 

[Vikedog64]

No it isn't. Those pilots have put in 20+years with Delta airlines. How long was Leo here, and how many years seniority was he given? Plus, I don't know of any pilot leaving with a 16 million dollar pension . I would say there is a huge difference, but it you want to believe it is the same thing, go right ahead.

Luv, in my mind it is the same. Leo and the gang took the money and ran just as the pilots are because they know they better take it while they can. To me, length of service means nothing. Neither in my view are ethical.