2nd Qrtr Numbers

[SVQLBA]

6. False. Most of DL's cash is NOT restricted. read the financial statements before you make assertions like that. Your credibility goes to pieces when you spout inaccuracies.

WT

You are always interesting to read and usually put together good arguments. However, you are missing the big issue for DL at the moment and that is cash. DL may have $1.7Bn unrestricted but they need to maintain $1.0Bn unrestricted to satisfy GE and Amex. They actually burned cash in the 2nd qtr (about $150M if I recall) -- a quarter when other carriers usually generate cash (I expect even UA will be cash flow +ve). They have a stack of obligations coming up in the rest of the year (see the Q1 10Q) and also have the minor thing of requiring a new credit card agreement. The cc processor could require a greatly increased holdback, hitting both cash on hand and the amount of cash that becomes restricted.

Basically, DL needs to pull something out of the hat in terms of either a) a major asset sale (I don't see people lining up to pay money for regional carriers with 50 seat RJs) B) renegotiating again the GE Amex deal or c) getting a new liquidity generating deal from someone else, though just what it would be secured on I don't know as all their assets are now leveraged.

Mgt were very cagey on the results call on any question asked about liquidity. I agree DL is making great strides on cost and efficiency, slower progress on revenue and network, but cash is the critical issue at the moment. The fact that they burned cash in Q2 is not good.

 

[eolesen]

WorldTraveler's comparison of CASM is useless on a comparison basis because it isn't adjusted for stage length.

Wait a couple weeks for the rest of the earnings reports to come out, and you'll see how everyone stacks up across the industry. DL will not be at the bottom by any measure because their average stage length is longer due to all the outsourcing of shorter haul traffic to DCI carriers.

 

[aislehopper]

Really? How many front-line DL employees (besides the pilots) still have defined benefit pensions? It's my understanding they lost those years ago.

[post="283262"][/post]​

Actually, most, if not all of us do still have defined benefit, but there is a catch. The switch over to cash balance occurs in 2010. If you can retire by then, you get the defined benefit. Afterwards, cash balance. Our current 401K and match are not affected.

 

[nyc6035]

Consider also that DL has over $8 BILLION in tax assets as a result of the losses it has incurred. Those assets exceed by several billion dollars the amount of DL's pension underfunding. Therefore, it doesn't make a whole lot of sense for DL to terminate their pension plans by going into bankruptcy since BK almost always results in a loss of tax assets - as UA will find out. DL will not be paying taxes for years after UA has to - and probably long after every other airline - and those savings will go directly to DL's bottom line.

[post="283068"][/post]​

Time will tell regarding the particulars for UA, but on this point you are likely to be mistaken. Look back at the first two TWA Bks. They kept their carryover losses during both of these transactions. All other things being equal I would expect UA to retain these 'assets' as well.

 

[WorldTraveler]

SVQ,
thank for participating in the conversation.

In my mind, there are 3 things that are necessary for financial stability: revenue, costs, and balance sheet. The first two obviously have to be in some sort of equilibrium such that an entity is profitable. Businesses can lose money for a period of time as long as there is some strength in the balance sheet.
Delta entered the post 9/11 period with one of the best balance sheets in the legacy segment of the industry. They also have historically been one of the best airlines at cost control, although they lost complete control of that during the Mullin era. Where Delta has consistently lagged the industry is in revenue production. DL has had both a much higher exposure to domestic and LCC markets with a corresponding lack of business and international markets. DL has also carried more connecting traffic than any other airline which made sense until fares came down so low that such traffic can barely be profitable on a nonstop basis let alone when it has to connect. Further, DL has used big aircraft on their domestic system which has necessitated carrying low yielding passengers in order to keep their assets functioning.

Since UA entered bankruptcy and AA initiated its restructuring, DL has been in the position of having a disadvantage on all 3 counts of the financial pillar: high costs, weak revenues, and a weak balance sheet. My optimism this week is because DL finally corrected one of the three pillars to financial stability in that it now has the lowest costs among the legacy segment, retaking its long standing position. Note that it took only six months to do.

What DL has to do is correct the revenue aspect which means quit hauling connecting low yielding passengers to Florida which means alot of capacity has to come out of their domestic hub system. They are doing that and say that there will be even more steps taken this fall to shift capacity to higher yielding local business type markets and out of lower yielding connecting leisure markets. I'm not sure of the current 737 classic count although it was about 75 last year but all of those planes will come out of DL's system in the next 18 months according to DL. 757s are moving to Song for point to point leisure flying while some 767s are being converted to international. In total, there is a significant amount of capacity that is in line to be reallocated over the next 18 months but I am confident DL knows what to do and will make it happen.

The balance sheet is the most troublesome to me as it is to most people. However, every creditor recognizes that they are better off working with a company outside of bankruptcy than to force them into bankruptcy where payments can be tied up for years and negotiations give the debtor far more control. For example, GE as DL's biggest creditor is not likely to lose anything now since they have very good collateral but they could lose in BK if DL is able to reject leases or fails to continue to restructure its business and liquidates. There are many smaller creditors who could lose alot if DL ends up in bankruptcy by being unsecured creditors. Because no one wins in bankruptcy but many people do lose and an aweful lot more risk is injected into the process, I fully expect creditors to work with Delta as long as there is hope of DL turning things around. Given that DL has demonstrated good cost controls and has what sounds like a reasonable plan to change their revenue plan, it is not in anyone's interest to force DL into bankruptcy if the company can be saved outside of BK. My logic is the same for pension reform. However, all of those bills do have to be paid at some point so DL has to become very profitable very soon which will open the possibility that DL can tap into new equity; they have a current shelf offering in place for up to $1B in new financing which they could access if they become profitable. They also have successfully converted several debts into equity and continue to pursue more.

Having the lowest costs which will eventually translate into being profitable makes it far more likely that investors will be willing to help them their balance sheet.

 

[WorldTraveler]

NYC,
the IRS says that a company loses its tax benefits if more than a certain percentage of the company changes control. I'm not sure what that number is (if someone knows jump in) but it is undoubtedly less than 50%. Given that UA says it needs around $2B in new equity to emerge from bankrupty (which isn't unreasonable since HP/US have almost half that amount) and UA's market value before its BK filing was much less than $2B, it is very likely that there will be a change of control event and at least some of the tax assets will be lost.

 

[NewHampshire Black Bears]

World Traveler,

For what it's worth, I'M going to step back, and watch DL "1 more qtr", before I put my meaningless prediction on DL, that they won't climb out of this $$ hole, before BK-11.

I'm not sure why I feel this way ? Call it a hunch.

You "may POSSIBLY" be on to something, as far as the "good ol' boys" from Hotlanta are concerned.

And besides, as rough a spot that you may be in, it could be worse. You could be in the "BK11/UAL/3 HOLE" !!!!!!!!!!!

 

[Busdrvr]

NYC,
the IRS says that a company loses its tax benefits if more than a certain percentage of the company changes control. I'm not sure what that number is (if someone knows jump in) but it is undoubtedly less than 50%. Given that UA says it needs around $2B in new equity to emerge from bankrupty (which isn't unreasonable since HP/US have almost half that amount) and UA's market value before its BK filing was much less than $2B, it is very likely that there will be a change of control event and at least some of the tax assets will be lost.

[post="283462"][/post]​

Wrong, do some research.

 

[SoftLanding]

Test

Just getting my feet wet




http://www.investmenttools.com/futures/bdi...c_dry_index.htm

 

[SoftLanding]

My take on DAL. 2nd quarter cost cutting impressive.

Oil prices is a problem for all carriers. But oil may have topped, even with high demand, no shortage on the market.

See the above attachement re Baltic Shipping Index, topped out in Dec-04, indicating softer demand and a softer economy around the world. Though 2nd quarter growth in China was very strong at about 9.3%.

Also believe the pension bill moving through Congress will be passed, because the alternative is much worse, with a possible S&L bail-out of the PBGC.

Have NO position, at present, in DAL. But these last few months sure have been good for trading the airlines, no?!

 

[WorldTraveler]

oh don't tease us, busdriver. give us facts and share your knowledge with us. that's what we like.

welcome, soft landing. unfortunately, the numbers have said for months that oil should come down but it isn't.

 

[SoftLanding]

oh don't tease us, busdriver. give us facts and share your knowledge with us. that's what we like.

welcome, soft landing. unfortunately, the numbers have said for months that oil should come down but it isn't.

[post="283790"][/post]​

WorldTraveler,


so right you are re oil prices. Let's see what 2006 brings...That said my XLE's puts are rather red...LOL