Delta Air Lines: More Questions Than Answers
We've seen two major airlines go into bankruptcy over the last two years. Now, we have one of those airlines back into bankruptcy, and the threat of yet another, Delta Air Lines, becoming the third major airline to suffer from a case of Bankruptcy Blues.
But as the situation with Delta continues to decline, and as I find myself receiving more and more feedback emails from both aircraft lessors and vendors of the company, in addition to our usual union sources, I continue to come back to a question I've had for many months.
Is management at the airline really serious about attempting to avoid a bankruptcy filing? Or has management dropped the ball? Or, has management planned for a Chapter 11 filing from the get-go?
Let's backpedal a bit and start with the pilots' union situation.
First, as we reported here last week, the Delta ALPA MEC did agree to make changes in the pilot contract with the airline. These changes were hammered out by both sides on Monday. The general membership of the union will be voting on the proposed changes through Sept. 28.
But contrary to what some media reports have suggested, these changes were changes made for ONE reason. That reason? To make sure the airline can continue to fly, even if hundreds of pilots decide to opt out by retiring early.
This agreement has nothing to do with the bigger issue -- that of major concessions.
So, as of this writing, the Delta pilots continue to be the highest paid pilot group in the U.S. And, in talking to some of our Delta pilot sources this week, it sounds very much like the pilots remain in a "wait and see" mode concerning further debt restructuring.
Mark Streeter, analyst with JP Morgan, concurred with this take in a research note issued Tuesday, saying that "we assume that the pilots want further debt restructuring than what has been announced to date."
Now, let's switch gears and look at what I am hearing from more than one lessor at the airline.
As most of you know, Delta has been attempting to renegotiate terms on some of its debt. The face that the airline is putting on this effort is that it is crucial that this debt be restructured.
But, is this really true? Or is it only true because now management at the airline has backed itself into a corner with the pilots' union? A corner, I might add, that it should not have allowed itself to be backed into in the first place. In other words, it's pretty clear that the pilots' are not going to make the kind of cuts that management says it "has to have" until it sees more debt at the airline restructured.
But whose fault is this?
Talking to more than one Delta debt holder this past week, the feedback I received was heavily "anti-pilot." Not surprising. In addition, in terms of the airline's latest offer to restructure its debt, selected debt holders I was in touch with this past week seem to be lukewarm towards the airline's latest restructuring attempts.
As one lessor put it,
"As you may know, Delta asked its Lessors to a presentation on Sept. 13. This was then followed by a specific restructure proposal on the day after. The formal exchange offer was put out there the same day. I must say it feels like they are running a sham -- little or no urgency in the negotiations and/or efforts to follow-up. Plus, the total amount of the ask exceeds what they said they were looking for from this group. This puts the whole issue of fairness out there. Finally, the advisors have been virtually invisible. Not necessarily a bad thing, but again, where is the "urgency" that [the airline] is projecting in the press?"
Another lessor wrote, "Holly, this is the most screwy thing I've ever been involved with.. Why the hell didn't the airline take the $700 million it could have gotten from the pilots months ago? Now it sounds to me like we have a classic "No-Win Stand-Off" here. And, as far as their initial exchange offer is concerned, we're not biting."
Let's go back to this spring.
In March I wrote here that my pilot sources (and I think they were right on the mark) were telling me the following. One, management at the airline was not negotiating. Rather, management was continuing to "tell" the pilot group that it had to have "x" amount. Then, that amount continued to move upward.
Meanwhile, I don't think there is any question that, at that point in time, almost 8 months ago, the Delta pilots' union would have agreed to cuts totalling at least 20%. Maybe a bit more. Maybe not. But certainly at least that amount.
But what did management do? It did not negotiate.
It refused to go after what was, obviously, money lying on the table in front of them.
Instead, management upped the ante, saying it needed even more money from the pilots. $700 million was not enough. It now needed over $1 billion.
At the same time, management also told the pilot union that it could not provide any justification for the additional cuts, or give the union any additional feedback as to the strategic plan for the airline, as the airline was in the midst of a total internal "review."
In July, the pilots' union put in writing what we had known was the case for months. The union told Delta it was willing to take a 23% cut, or approximately $700 million.
The reluctance on the part of CEO Gerald Grinstein to take the money in March was bad enough. But once again, the airline continued to sit on its rear, insisting that either the pilots pony up the whole billion or, there was nothing to discuss. Again, despite an obvious need to negotiate, the airline did not do so.
This stance has now put the airline in, as the one lessor said, a "No-Win Stand-Off."
Now Grinstein has those on the debt side refusing to budge until the pilots move. And the pilots' union refuses to make any serious move until the airline "gets more" from its debt holders.
In my opinion Grinstein only has himself to blame for this mess.
And, as to the recent debt exchange offer by the airline, again, if the need to restructure the airline's debt is as urgent as the airline says it is, why isn't the offer more attractive? Why isn't, as more than one lessor has commented, Delta on the phone to them day in and day out, in an attempt to get them to agree to some type of concessionary agreement?
I agree. The public pronouncements by the airline don't seem to match what the airline is actually doing.
As a result, I think it's only a matter of time before we see the airline in Chapter 11 protection -- an inevitable outcome that obviously a few of the airline's vendors have already figured out as well.
We've seen two major airlines go into bankruptcy over the last two years. Now, we have one of those airlines back into bankruptcy, and the threat of yet another, Delta Air Lines, becoming the third major airline to suffer from a case of Bankruptcy Blues.
But as the situation with Delta continues to decline, and as I find myself receiving more and more feedback emails from both aircraft lessors and vendors of the company, in addition to our usual union sources, I continue to come back to a question I've had for many months.
Is management at the airline really serious about attempting to avoid a bankruptcy filing? Or has management dropped the ball? Or, has management planned for a Chapter 11 filing from the get-go?
Let's backpedal a bit and start with the pilots' union situation.
First, as we reported here last week, the Delta ALPA MEC did agree to make changes in the pilot contract with the airline. These changes were hammered out by both sides on Monday. The general membership of the union will be voting on the proposed changes through Sept. 28.
But contrary to what some media reports have suggested, these changes were changes made for ONE reason. That reason? To make sure the airline can continue to fly, even if hundreds of pilots decide to opt out by retiring early.
This agreement has nothing to do with the bigger issue -- that of major concessions.
So, as of this writing, the Delta pilots continue to be the highest paid pilot group in the U.S. And, in talking to some of our Delta pilot sources this week, it sounds very much like the pilots remain in a "wait and see" mode concerning further debt restructuring.
Mark Streeter, analyst with JP Morgan, concurred with this take in a research note issued Tuesday, saying that "we assume that the pilots want further debt restructuring than what has been announced to date."
Now, let's switch gears and look at what I am hearing from more than one lessor at the airline.
As most of you know, Delta has been attempting to renegotiate terms on some of its debt. The face that the airline is putting on this effort is that it is crucial that this debt be restructured.
But, is this really true? Or is it only true because now management at the airline has backed itself into a corner with the pilots' union? A corner, I might add, that it should not have allowed itself to be backed into in the first place. In other words, it's pretty clear that the pilots' are not going to make the kind of cuts that management says it "has to have" until it sees more debt at the airline restructured.
But whose fault is this?
Talking to more than one Delta debt holder this past week, the feedback I received was heavily "anti-pilot." Not surprising. In addition, in terms of the airline's latest offer to restructure its debt, selected debt holders I was in touch with this past week seem to be lukewarm towards the airline's latest restructuring attempts.
As one lessor put it,
"As you may know, Delta asked its Lessors to a presentation on Sept. 13. This was then followed by a specific restructure proposal on the day after. The formal exchange offer was put out there the same day. I must say it feels like they are running a sham -- little or no urgency in the negotiations and/or efforts to follow-up. Plus, the total amount of the ask exceeds what they said they were looking for from this group. This puts the whole issue of fairness out there. Finally, the advisors have been virtually invisible. Not necessarily a bad thing, but again, where is the "urgency" that [the airline] is projecting in the press?"
Another lessor wrote, "Holly, this is the most screwy thing I've ever been involved with.. Why the hell didn't the airline take the $700 million it could have gotten from the pilots months ago? Now it sounds to me like we have a classic "No-Win Stand-Off" here. And, as far as their initial exchange offer is concerned, we're not biting."
Let's go back to this spring.
In March I wrote here that my pilot sources (and I think they were right on the mark) were telling me the following. One, management at the airline was not negotiating. Rather, management was continuing to "tell" the pilot group that it had to have "x" amount. Then, that amount continued to move upward.
Meanwhile, I don't think there is any question that, at that point in time, almost 8 months ago, the Delta pilots' union would have agreed to cuts totalling at least 20%. Maybe a bit more. Maybe not. But certainly at least that amount.
But what did management do? It did not negotiate.
It refused to go after what was, obviously, money lying on the table in front of them.
Instead, management upped the ante, saying it needed even more money from the pilots. $700 million was not enough. It now needed over $1 billion.
At the same time, management also told the pilot union that it could not provide any justification for the additional cuts, or give the union any additional feedback as to the strategic plan for the airline, as the airline was in the midst of a total internal "review."
In July, the pilots' union put in writing what we had known was the case for months. The union told Delta it was willing to take a 23% cut, or approximately $700 million.
The reluctance on the part of CEO Gerald Grinstein to take the money in March was bad enough. But once again, the airline continued to sit on its rear, insisting that either the pilots pony up the whole billion or, there was nothing to discuss. Again, despite an obvious need to negotiate, the airline did not do so.
This stance has now put the airline in, as the one lessor said, a "No-Win Stand-Off."
Now Grinstein has those on the debt side refusing to budge until the pilots move. And the pilots' union refuses to make any serious move until the airline "gets more" from its debt holders.
In my opinion Grinstein only has himself to blame for this mess.
And, as to the recent debt exchange offer by the airline, again, if the need to restructure the airline's debt is as urgent as the airline says it is, why isn't the offer more attractive? Why isn't, as more than one lessor has commented, Delta on the phone to them day in and day out, in an attempt to get them to agree to some type of concessionary agreement?
I agree. The public pronouncements by the airline don't seem to match what the airline is actually doing.
As a result, I think it's only a matter of time before we see the airline in Chapter 11 protection -- an inevitable outcome that obviously a few of the airline's vendors have already figured out as well.
AL) is threatening bankruptcy. 
