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?

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Regards,

USA320Pilot

 

[BoeingBoy]

Or, to paraphrase Paul Harvey, "The rest of the story".....

- Not filing executive compensation packages at the time the POR is filed is routine - US didn't file theirs till months later in BK2. It may indeed be an attempt by debtors to obscure those packages, but everybody does it.

- the "grounds" of the valuation are spelled out in the POR material - all one has to do is be able to read to find it.

- No cash? From the POR:

- "Each holder of an Allowed Other Administrative Claim shall be paid the full unpaid amount of such Allowed Other Administrative Claim in Cash."

- "Except to the extent that a holder of an Allowed Priority Tax Claim has been paid by the Debtors prior to the Effective Date or agrees to a different treatment, each holder of an Allowed Priority Tax Claim shall receive, at the sole option of the Reorganized Debtors, (a) a single Cash distribution in an amount equal to such Allowed Priority Tax Claim, (B) equal Cash payments on the fifth and the sixth anniversary of the date of assessment of such Allowed Priority Tax Claim in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest compounded semi-annually from the Effective Date on any outstanding balance calculated at a rate equal to the yield published in The Wall Street Journal, Eastern Edition on the Effective Date for a United States Treasury note with a maturity closest to five years or © such other recovery as may be determined by the Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim."

- FYI, the "Priority Tax Claims" constitute the bulk of the outstanding claims. It's only the "General Unsecured Creditors" that will receive only stock and they represent a small percentage of outstanding claims.

- Again with the "no cash" - see above.....

Jim