Delta Bankruptcy Soon

[Hatu]

Smith Barney sees Delta bankruptcy soon

CHICAGO, Oct 7 (Reuters) - Smith Barney analyst Daniel McKenzie on Thursday said he saw a high probability that Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) , struggling to cut costs to avoid bankruptcy, could file for Chapter 11 by the end of the month.

http://yahoo.reuters.com/financeQuoteCompa...07323932_newsml

 

[WorldTraveler]

High probability...could. Still a lot of doubt in that statement.

The WSJ yesterday reported that DL and the pilots are near an agreement and that the pressure for the pilots to deliver has increased since the company cut labor costs elsewhere.

The reality is the rest of the legacy carriers are more than a bit nervous. If Delta successfully cuts more than $2B in costs outside of bankruptcy, the playing field will become very unbalanced very quickly.

 

[DLFlyer31]

High probability...could. Still a lot of doubt in that statement.

The WSJ yesterday reported that DL and the pilots are near an agreement and that the pressure for the pilots to deliver has increased since the company cut labor costs elsewhere.

[post="188759"][/post]​

Even if the pilots give up the cash DL wants, DL still needs significant concessions from the creditors. Getting those concessions outside of BK will be extremely difficult and time is running out.

 

[FWAAA]

High probability...could. Still a lot of doubt in that statement.

The WSJ yesterday reported that DL and the pilots are near an agreement and that the pressure for the pilots to deliver has increased since the company cut labor costs elsewhere.

The reality is the rest of the legacy carriers are more than a bit nervous. If Delta successfully cuts more than $2B in costs outside of bankruptcy, the playing field will become very unbalanced very quickly.

[post="188759"][/post]​

By "the rest of the legacy carriers," I would guess you are talking about CO and NW, right? UAL and USAir have cut billion in bankruptcy, but it may not be doing any good. AA cut $2 billion+ in labor/vendor costs last year, outside bankruptcy, and the jury is still out on whether it was enough. AA mentioned another $2 billion in hoped-for savings, and the jury is still out on whether those ever materialized.

Seems to me that if DL is successful, it won't unbalance the playing field, it will just mean that DL will have joined all the others in cost cutting (except for NW and CO, of course).

 

[WorldTraveler]

FWAAA,
By “the rest of the industry†I mean ALL five other legacy carriers. If you take $2.5B out of DL’s 2003 year end costs and assume 95% of the revenue (based on a 5% decline in RASM which is actually on the high end of where the industry is right now), DL ends up with a CASM of 9.0 cents and an annual profit of $1B. Although AA and CO have some limited advantage on fuel based on hedging, it is not large enough to give them a significant advantage over the rest of the legacies. Even considering the cost cuts which other carriers have done and announced, no other legacy carrier has announced anything that would get costs down to that level. Even though AA has done the best job so far of getting costs down, they clearly have considerable risk based on DL’s financial projections associated with its turnaround plan. Not only will Delta’s costs drop below where AA is now but DL is opening AA up to very likely revenue dilution at DFW by virtue of freeing up gates to allow a low cost carrier to enter. That is part of why I think you recently have started hearing AA say that they may not have cut costs deep enough.
UA and US both have not developed plans that will get costs down to this level without also significantly cutting revenues in the process, particularly in light of both companies’ histories of reducing revenues faster than costs.
As for CO and NW, both are in somewhat better positions from a cost standpoint than the big three and US but they are both much more vulnerable to revenue decreases since they have less low cost competition on their networks.

DLFlyer31,
I haven’t seen anything for a couple weeks but right after Delta’s debt swap (unsecured for secured) came out, the consensus seemed to be that most unsecured creditors would probably accept Delta’s offer of a debt swap even if it means some would get only 30 cents on the dollar. I don’t think DL wants to announce a pilot agreement even if they get one because the debtholders would lose much of their incentive to exchange their debt if a pilot deal is announced. While Delta needs debt relief, if successful what they are going to get is several hundred million dollars per year – a fraction of what DL will get from the pilots.

I still believe the pilots will give Delta what it needs but an announcement won’t be made before the debt swap acceptance date occurs on Oct 14 (I think) but probably before Delta’s quarterly earnings which I think is Oct. 20.

 

[mistified]

FWAAA,
By “the rest of the industry†I mean ALL five other legacy carriers. If you take $2.5B out of DL’s 2003 year end costs and assume 95% of the revenue (based on a 5% decline in RASM which is actually on the high end of where the industry is right now), DL ends up with a CASM of 9.0 cents and an annual profit of $1B. Although AA and CO have some limited advantage on fuel based on hedging, it is not large enough to give them a significant advantage over the rest of the legacies. Even considering the cost cuts which other carriers have done and announced, no other legacy carrier has announced anything that would get costs down to that level. Even though AA has done the best job so far of getting costs down, they clearly have considerable risk based on DL’s financial projections associated with its turnaround plan. Not only will Delta’s costs drop below where AA is now but DL is opening AA up to very likely revenue dilution at DFW by virtue of freeing up gates to allow a low cost carrier to enter. That is part of why I think you recently have started hearing AA say that they may not have cut costs deep enough.
UA and US both have not developed plans that will get costs down to this level without also significantly cutting revenues in the process, particularly in light of both companies’ histories of reducing revenues faster than costs.
As for CO and NW, both are in somewhat better positions from a cost standpoint than the big three and US but they are both much more vulnerable to revenue decreases since they have less low cost competition on their networks.

DLFlyer31,
I haven’t seen anything for a couple weeks but right after Delta’s debt swap (unsecured for secured) came out, the consensus seemed to be that most unsecured creditors would probably accept Delta’s offer of a debt swap even if it means some would get only 30 cents on the dollar.

I still believe the pilots will give Delta what it needs but an announcement won’t be made before the debt swap acceptance date occurs on Oct 14 (I think) but probably before Delta’s quarterly earnings which I think is Oct. 20.

[post="188915"][/post]​

From Planebusiness 10/6/04

Debt Holders Moving on Delta; Could Make A Move Towards Chapter 11 More Certain

We received an interesting note from one of our aircraft lessor subscribers Tuesday. We've talked here extensively about the ongoing dance between Delta and its debt holders. Well, according to this subscriber, the stakes are now being raised. And this news is not good for the airline.

"We've been hearing from several sources that hedge and value funds have been buying up extensive positions in Credit Default Swaps on Delta, essentially betting that the company tanks. After building large CDS positions, the same parties are buying pieces of EETC, ETC, and PTC debt to form blocking positions to prevent 100% consent by the debt to any changes in the payment waterfalls outside of bankruptcy. They are basically trying to prevent a restructuring outside of bankrupty so that Delta will have to file, thereby increasing the value of the CDS investments."

For those of you who don't understand all of that --here's the easy-bake translation. This means it is going to be that much more difficult, if not impossible, for Delta to work out a debt restructuring outside of bankruptcy, if these entities are successful in getting control of enough blocks of debt.

In talking to a couple of our other lessor subscribers Wednesday morning, they too have confirmed that this is going on.

 

[Winglet]

The employee givebacks at AA were wiped out by fuel increases. As far as pilots go, DAL is about 40-50% above AA right now. If DALPA is going to match AA after givebacks, their cut is going to have to be HUGE.

 

[mistified]

The employee givebacks at AA were wiped out by fuel increases. As far as pilots go, DAL is about 40-50% above AA right now. If DALPA is going to match AA after givebacks, their cut is going to have to be HUGE.

[post="188933"][/post]​

On average about a 35% payrate reduction to match AA.

 

[FWAAA]

The employee givebacks at AA were wiped out by fuel increases. As far as pilots go, DAL is about 40-50% above AA right now. If DALPA is going to match AA after givebacks, their cut is going to have to be HUGE.

[post="188933"][/post]​

Not exactly, Mr Exaggeration.

AA's employee givebacks totaled $1.8 billion.

AA has estimated that fuel will cost about $1.0 billion more this year than last.

On top of that, revenue for this year is expected to be $2 billion higher than in 2002.

 

[Oneflyer]

Not exactly, Mr Exaggeration.

AA's employee givebacks totaled $1.8 billion.

AA has estimated that fuel will cost about $1.0 billion more this year than last.

On top of that, revenue for this year is expected to be $2 billion higher than in 2002.

As of right now AA's fuel cost are $1.7 billion higher annualized year over year.

The fact is that AA is bleeding cash and if oil stays above $50 a barrel AA will probably have to file for bankrupcty as early as March. That said, it has to be much worse at Delta and others.

 

[FWAAA]

As of right now AA's fuel cost are $1.7 billion higher annualized year over year.

The fact is that AA is bleeding cash and if oil stays above $50 a barrel AA will probably have to file for bankrupcty as early as March. That said, it has to be much worse at Delta and others.

[post="189327"][/post]​

OK, Henny Penny.

You are correct, and so am I.

AMR will probably spend about $1.0 to $1.1 billion more for fuel this year over last. On that point, I am correct.

You are correct when you point out that at TODAY's price, AA is spending $1.7 billion more, on an annualized basis, than it did last year.

But at the current prices, 2004's fuel expense will be about $1.0 to $1.1 billion more than 2003's fuel expense. Arpey said so when two weeks ago he said:

FOR ALL OF 2004, WE EXPECT TO SPEND OVER A BILLION DOLLARS MORE FOR FUEL THAN WE WOULD HAVE WITH LAST YEAR'S ALREADY RELATIVELY HIGH FUEL PRICES.

http://www.aa.com/content/amrcorp/corporat...ysplinter.jhtml

Yes, the prices have increased in the past two weeks, but not enough to make the "over a billion dollars more" into $1.7 billion more.

For the first 6 months of this year, AMR spent $349 million more on fuel compared to the first 6 months of last year. And even at $53/bbl, the last 6 months of this year aren't going to equal $1.35 billion more than the last 6 months of last year. Probably more like about $700 million, making my (and Arpey's) estimate the correct one. Not yours.

Bankruptcy by March? Uh-huh. Right.

No wonder the unionized employees at AA don't always trust management - sometimes the managers exaggerate the truth, just a little. B)

 

[UnitedChicago]

High probability...could. Still a lot of doubt in that statement.

[post="188759"][/post]​

WorldTraveler - you need to face reality and the reality is Delta will not survive with pilot wage concessions alone. If it were just a matter of concessions, United would have emerged and American wouldn't be spiraling back towards difficult decisions.

I root for United. However - I don't want to see Delta file. The legacy carrier's employees have to come together to some extent - they're still rivals but there's not much difference now as to their problems. Don't waste your time splitting hairs with United or American. The LCC's are the enemy.

Take it from someone who never, ever though they'd see their "sports team" come apart - you have to open your eyes to what could happen. Chapter 11 will most likely come Delta's way. That's the only way to restructure high costs across the external factions.

 

[WorldTraveler]

UnitedChicago,
I don't doubt that 11 is a real possibility and neither does anyone at Delta. In fact, my contacts at Delta probably see 11 as more inevitable than I do. No one doubts that DL needs big concessions from all stakeholders - just about what one would expect to get in Chapter 11. Because US bankruptcy laws are so punitive, most parties are far more willing to work w/ a company to keep them out of bankruptcy than wait for or push them into bankruptcy. Delta's situation has been deteriorating for several years and the wreckage of airlines since 9/11 is plentiful meaning no one should think that what happened to UA and US can't happen to DL. However, if the stakeholders at UA and US used their head instead of their emotions, those 2 companies may not be in bankruptcy today.
There is news that indicates that DL's stakeholders are working to help DL. The real threat at this point is from those who can actually profit from a DL bankruptcy. While I don't believe those groups will succeed (because it also requires someone else to lose in order for them to win), it is yet another threat to Delta's reorg attempts.
We are now down to a couple weeks or less. The unsecured debt swap is due this week. Quite frankly, it's time for this saga to be through.

 

[UnitedChicago]

However, if the stakeholders at UA and US used their head instead of their emotions, those 2 companies may not be in bankruptcy today.

[post="189501"][/post]​

Of the many points I could respond to this statement with - I choose one: why aren't your pilots "using their heads"? It's pretty black and white thanks to US Airways' and United's filing as to why they "should use their heads". SO why haven't they?

 

[Fly]

I can answer that......according to my very, very reliable resource (he flys for Delta)....they don't trust the company. They believe that if they take the cut, the company is going to enter BK anyway, and then take another cut. They are willing to take their chances with the judge (and one paycut, not two)