Delta Turnaround Continues

[WorldTraveler]

In addition to the Skymiles changes posted on a separate topic, Delta also announced new service to Chennai (Madras), India (the first by a US carrier).

http://biz.yahoo.com/prnews/041215/clw040_1.html


Also, Grinstein hinted at a sale of ASA or Comair, either of which would help to stabilize Delta's balance sheet.

http://www.thestreet.com/_yahoo/stocks/tra...=FREE&cm_ite=NA

In the same article, Grinstein says DL will be asking for special pension deferrals (perhaps over 20 years) to reduce the pension funding burden and reduce the possibility the funds will be dumped on the PBGC.

All positive signs which not very many believed were possible just a very few weeks ago.

 

[PINPOINT]

I thought Grinstein's mention of the Comair and ASA potential sales were interesting. The ASA pilots just finished informational picketing in Atlanta, I believe. I wonder if he's just firing a shot across their bow? After getting 1 billion from the Delta pilots, I would think it unlikely that the company would give other pilots raises.

I'm also wondering how much these units are worth and how this would affect the debt structure. The company has purchased more regional jets than any other. It has also signed a pact with GE, that allows GE to move 40 RJ's to Delta. Interestingly, USAir has 39 RJ's on lease from GE.

DAL has 21 billion in debt. However, that number, I believe, shrinks to 12.5 billion when pension liabilities and other, associated, long term debt is factored out. How would that figure look if the sale of the ASA and Comair units were effectuated? Hmm...interesting.

 

[WorldTraveler]

Delta valued its Delta connection holdings at $2 billion as part of its GE financingn transactions. More significantly, alot of DL's corporate debt is regional jet related. DL has acquired very few mainline aircraft over the last few years but has continued to add $500 million to $1B worth of RJs per year. Gaining the cash plus unloading the debt seems very prudent in the short term. At the same time, Delta would have to start paying for regional carrier services but I believe most of the Delta connection carriers are at the high end of the industry when it comes to costs - although Delta has accumulated some (but not all) of the best regional airlines in the industry as partners.
I think Grinstein knows that they have some leverage with the government in getting longer-term pension relief. The pension relief of 2003 didn't push obligations back long enough to be any real help and the industry is still fragile enough that there is a credible argument to be made for stretching out pension obligations over enough years to provide real financial relief or bankruptcy has to be considered an option.

 

[PINPOINT]

Thanks for the info, Worldtraveler.

 

[DLFlyer31]

The sale of ASA and Comair could help DL a lot. The cash could be used to get some new mainline planes...particularly a 100 seater and some extra 777's (for all the international flying).

However, I'm still not sure how much ASA/Comair are really worth. DL values them at $2 Billion, but I question that figure. Given that the regional jet craze (particularly for 50 seaters) is dying, I doubt DL would be able to get that much.

The RJ's are not effective competing head to head against LCC's and DL's two carriers are not the cheapest of the RJ operators (not the most expensive either). ASA is dismal in terms of customer service and possible labor trouble with the pilots at ASA only further degrades ASA's value.

Interesting times ahead....

 

[WorldTraveler]

Actually, I just read that Comair is the lowest cost regional jet operator of the big 7 in the US which I found surprising. Comair is a very well run airline so perhaps their lower costs come through efficiency.

Also, even if DL sells ASA and/or Comair, I'm sure both will remain Delta operators for several years - just as ExpressJet is for CO. The value in an IPO is determined by the amount of future revenue.

 

[cltflyguy]

Please, the only thing making DL $$$$$ money at this point , is ComAir and ASA.

And maybe ur right, the sell of ComAir and ASA will be better for them not for DL

 

[WorldTraveler]

However, DL is obviously confident in its turnaround plan for mainline to sell or reduce its Delta Connection ownership positions. It makes no sense to sell if that is all that is making money but if mainline becomes profitable, it no longer makes as much sense to hold onto them.

 

[7.5victim]

Actually, I just read that Comair is the lowest cost regional jet operator of the big 7 in the US which I found surprising. Comair is a very well run airline so perhaps their lower costs come through efficiency.

[post="229402"][/post]​

WT, could you share your source? I share your surprise. I thought Comair's labor costs were high, and prevented them from getting additional aircraft and flying earlier this year. I know they asked both the pilots and FA's to open their contracts, and both groups refused.

 

[luvn737s]

Who knows what regional feed really costs in this big shell game.

DAL is watching Flyi and seeing that spinning off a rj partner doesn't necesssarily breed a new competitor. Also, in a page lifted from the UAL playbook, DAL sees that by only using contractors they can pit one against the other and get the lowest cost without being married to any one airline. The Mesa-fication of the airline business.

 

[BoeingBoy]

The 3rd quarter data is here. It shows Comair as the next to lowest of the "big 7" regional carriers, with Mesa the lowest cost.

But as luvn737s said, who knows what the real cost of any of these carriers is, since all are "affiliated" with a mainline carrier.

Jim

 

[7.5victim]

BB, I know you didn't create the data, but I'm suspicious of it. First concern is no report from Pinnacle or Mesaba, both a public traded companies that report their stats. Why were they not included?

 

[WorldTraveler]

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