While I don't aften agree with Bob, going through BK and blaming labor for the company's ills and everything will be fixed once you get through 1113 is BS. Most of the BK's result in mgmt continuing to operate as before and relying on labor and outsourcing to resolve the cost and revenue problem. Looks like DL may be facing another trip to BK court if they don't get their act together. They outsourced damn near everything, what now? Pay cuts and slash the remaining benefits?
http://seekingalpha....e-stock-crashes
"Delta's abnormal accounting assumptions may provide a short-term boost to earnings, but they will likely lead to a long-term drag or possible bankruptcy."
"In my opinion, it is only a matter of time before Delta's management will have to guide earnings expectations lower, perhaps much lower. At which point, the stock will trade more on the underlying economics of the business than oil, just as it did today after announcing the plans for capacity reduction. Oil is down and so is DAL."
"From where I sit, the company is in an intractable situation. It is not making any money and its liabilities are formidable: pensions at $14.1 billion plus total debt of $11.9 billion equals $26 billion."
I fully expected that you - or someone - would jump on that article.
Seeking alpha and other sites like it are famous for running airline stocks through the same models they use in other industries and then proclaim that airlines can't make it because their business model including their debt levels is so far out of whack with the rest of what is accepted in general business.
Those reasons are precisly why airline stocks are not considered decent for holding as an investment and also why airline credit is generally far lower than other companies - ie it's considered junk.
Once you get passed the idea that nearly all airlines are poor investments and their credit sucks, then it is possible to evaluate stocks WITHIN the sector.
On that basis, DAL doesn't look as bad - since DL is paying down debt at the rate of about $1.5B per year.
Sure, DL has pension expenses, but since it is in the only solvent network airline that has not terminated its pension plans (other than the small amount UA holds via the CO merger), then it is not a surprise that DL's pension expenses are quite large.
If AA proceeds to keep its pension plans via a freeze instead of a termination, they will be fighting the same issue over time. And since AA's pension plans won't be funded while in BK, the level of underfunding will grow significantly until they emerge.
With respect to debt, DL's choice of buying used low value but reasonably modern aircraft such as the M90 and 717 are precisely part of its plan to not continue to take on debt.
Retaining the pension plans does put a drag on DL's finances relative to UA and US - and the same will be true if AA retains theirs.
Thus, the question becomes how well AA will do - and DL is now doing - relative to UA and US who will not have those pension plans - which is a big part of the reason why seeking alpha thinks DL is a bad investment.
But the reality is that DL is generating nearly $3B in free cash flow per year which enables them to strengthen their balance sheet.
AA's debt will be higher as a result of its increased used of newer aircraft - but AA's costs might be alot lower. Thus, AA might be better positioned to handle its higher debt levels because of lower costs.
Finally, it is worth noting that AA and DL pilots are both higher paid than UA pilots right now... and UA
will have to cough up a lot of cash to bring their pilots - as well as the CO pilots up to levels comparable with what DL pilots will get. UA's costs are already higher than DL's and they are higher than what AA expects their costs to be.
Thus, it is very possible that UA will be the hardest hit in the escalation of costs since UA employees have little reason to not expect to be brought up to higher salaries in exchange for making the merger work.
AA will be in a much better position to rebuild and could very well obtain significant benefits from UA's difficulties in integrating, since UA and AA have a pretty long history of one benefitting at the expense of the other.
It's also worth noting that DL's market capitalization was just about $10 billion today - but closed just under. I'm not sure when or if a US airline has ever had a market capitalization above $10B.
In contrast, UA's market cap is about $2B less than DL's and WN's as the 3rd largest airline based on market cap comes in about $3B less than DAL.