WorldTraveler
Corn Field
- Joined
- Dec 5, 2003
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Virtually everyone agrees that this is the week that will decide Delta's future. The first round of Delta's debt restructuring is due to be completed on Tuesday. The results of that and whether Delta has a pilot's agreement by then will surely determine whether Delta ends up in bankruptcy.
By far the number one response as to how Delta got into this situation is one of disbelief. Many people do understand the situation well but let's recap the causes and necessary actions for everyone's benefit.
1. Delta, long one of the best-run airlines in the business has had poor leadership for 10 years. Ron Allen's crowd boldly went after Pan Am but thought it necessary to eradicate any traces of the once great airline and in so doing lost many good business practices. Delta was way in over its head that they didn't recognize how bad things were or when it was time to rework the failed plan. The answer seemed to be to bring in industry outsiders. In reality, the roaring e-commerce economy turned Delta and the rest of the industry around in the late 90s but Mullin and his crew made sure that Delta leaders enjoyed the fruits of their labors as occurs in other industries but has never been successful in the airline industry. The most damning indictment of Mullin is that he allowed Delta to lose its long held cost advantage in the network carrier industry. Further, they had no vision of expanding Delta's network but were more interested in playing games with Delta pilots about whether to increase the number of the large international aircraft necessary to expand the international network.
2. Unwilling to endure what United's pilots did to their company and in full belief that pattern bargaining was just the way it worked in the airline industry, Mullin caved and gave Delta pilots UA plus 1. The ink was even dry before everyone realized that neither Delta nor United could afford it. For three years and 1/2 years, Delta pilots have enjoyed compensation that is not only out of line with the industry but also unsustainable for the company.
3. Michelle Burns took the strategy of hoarding cash and hanging on in the hope that other airlines would fall first and ultimately Delta would be able to turn itself around based on reduced capacity in the industry. In the meantime, unit revenues fell along with Delta's cost competitiveness which was exacerbated by the growing debt necessary to keep the company afloat.
4. Leo Mullin seemed to think that government bailouts would save Delta and the rest of the industry but in reality only further increased the size of the hole Delta had dug for itself. Mullin did recognize that consolidation needed to occur in the industry and must have believed that DL would survive and be an acquirer.
Thankfully, the situation can be turned around.
1. Delta's current management consists of the industry veterans who know the business but also are very business savvy. The airline industry is unique and experience is required for success in any aspect of it. Grinstein does recognize Delta's role in the industry and what is necessary for the company and industry to be profitable. Delta, along with American, have developed the most holistic plans to turn the company around - and have positioned it to prosper, grow, and take a position of leadership in a rejuvenated industry. Even other contributors on this board who work for other airlines recognize that Delta has historically been a well-run airline and has a viable turnaround plan in place pending successfully obtaining concessions.
2. Bankruptcy has become the tool airline management has used to counter pattern bargaining. Oh it's still pattern bargaining but the movement is unquestionably in the downward direction. Delta will get the concessions it wants from Delta pilots: outside of bankruptcy it will be worth $1B; if Delta goes into bankruptcy, all "uncooperative" stakeholders will disproportionately pay for sending Delta to bankruptcy - the pilot contribution will be much more than $1B since that amount, while huge, still puts Delta pilots in the position of being fairly well paid for US legacy pilots. In reality not getting concessions earlier has been a benefit for Delta since the deteriorating situation at Delta and the industry has only increased the justification for the size of the requested "contribution". If Delta has to come back for more concessions, the company probably can't be viable anyway.
3. It's time to deal with Delta's cost problem. There is no more credit and cash is near crisis levels. However, let's remember that AMR had less cash when they had their courthouse steps showdown with labor that resulted in even bigger concessions from its labor groups. Although there are few cases of successful out-of-bankruptcy turnarounds in the airline industry, AA will stand as one example already (although they still have work to do). I believe Delta's pilots and debtholders will help out because they will all fare much worse in bankruptcy than they will by working with the company outside of bankruptcy. Hopes of finding a better deal in front of the bankruptcy judge simply have not worked - and won't work now either; the wreckage in the industry is proof of that.
4. The government recognizes as evidenced in multiple reports that the legacy industry needs to adapt to the new value-driven environment or die. Delta and American have the potential of being industry leaders with global networks and customer driven products if both can emerge from their current situation - and AA is clearly much farther along the path. There will be no resistance to consolidation other than what exists to prevent market dominance in other industries because the pricing system is driven by the low cost carriers. Delta was built by acquiring other carriers throughout its history and will return to doing the same thing since DL has access to fewer unique international markets than any other carrier. Delta was also never given any special treatment or special route awards in contrast to AA, UA and a host of now defunct carriers.
This is the week Delta's future will be determined. I believe all involved will make the right choice. I believe we will know by the end of the week.
By far the number one response as to how Delta got into this situation is one of disbelief. Many people do understand the situation well but let's recap the causes and necessary actions for everyone's benefit.
1. Delta, long one of the best-run airlines in the business has had poor leadership for 10 years. Ron Allen's crowd boldly went after Pan Am but thought it necessary to eradicate any traces of the once great airline and in so doing lost many good business practices. Delta was way in over its head that they didn't recognize how bad things were or when it was time to rework the failed plan. The answer seemed to be to bring in industry outsiders. In reality, the roaring e-commerce economy turned Delta and the rest of the industry around in the late 90s but Mullin and his crew made sure that Delta leaders enjoyed the fruits of their labors as occurs in other industries but has never been successful in the airline industry. The most damning indictment of Mullin is that he allowed Delta to lose its long held cost advantage in the network carrier industry. Further, they had no vision of expanding Delta's network but were more interested in playing games with Delta pilots about whether to increase the number of the large international aircraft necessary to expand the international network.
2. Unwilling to endure what United's pilots did to their company and in full belief that pattern bargaining was just the way it worked in the airline industry, Mullin caved and gave Delta pilots UA plus 1. The ink was even dry before everyone realized that neither Delta nor United could afford it. For three years and 1/2 years, Delta pilots have enjoyed compensation that is not only out of line with the industry but also unsustainable for the company.
3. Michelle Burns took the strategy of hoarding cash and hanging on in the hope that other airlines would fall first and ultimately Delta would be able to turn itself around based on reduced capacity in the industry. In the meantime, unit revenues fell along with Delta's cost competitiveness which was exacerbated by the growing debt necessary to keep the company afloat.
4. Leo Mullin seemed to think that government bailouts would save Delta and the rest of the industry but in reality only further increased the size of the hole Delta had dug for itself. Mullin did recognize that consolidation needed to occur in the industry and must have believed that DL would survive and be an acquirer.
Thankfully, the situation can be turned around.
1. Delta's current management consists of the industry veterans who know the business but also are very business savvy. The airline industry is unique and experience is required for success in any aspect of it. Grinstein does recognize Delta's role in the industry and what is necessary for the company and industry to be profitable. Delta, along with American, have developed the most holistic plans to turn the company around - and have positioned it to prosper, grow, and take a position of leadership in a rejuvenated industry. Even other contributors on this board who work for other airlines recognize that Delta has historically been a well-run airline and has a viable turnaround plan in place pending successfully obtaining concessions.
2. Bankruptcy has become the tool airline management has used to counter pattern bargaining. Oh it's still pattern bargaining but the movement is unquestionably in the downward direction. Delta will get the concessions it wants from Delta pilots: outside of bankruptcy it will be worth $1B; if Delta goes into bankruptcy, all "uncooperative" stakeholders will disproportionately pay for sending Delta to bankruptcy - the pilot contribution will be much more than $1B since that amount, while huge, still puts Delta pilots in the position of being fairly well paid for US legacy pilots. In reality not getting concessions earlier has been a benefit for Delta since the deteriorating situation at Delta and the industry has only increased the justification for the size of the requested "contribution". If Delta has to come back for more concessions, the company probably can't be viable anyway.
3. It's time to deal with Delta's cost problem. There is no more credit and cash is near crisis levels. However, let's remember that AMR had less cash when they had their courthouse steps showdown with labor that resulted in even bigger concessions from its labor groups. Although there are few cases of successful out-of-bankruptcy turnarounds in the airline industry, AA will stand as one example already (although they still have work to do). I believe Delta's pilots and debtholders will help out because they will all fare much worse in bankruptcy than they will by working with the company outside of bankruptcy. Hopes of finding a better deal in front of the bankruptcy judge simply have not worked - and won't work now either; the wreckage in the industry is proof of that.
4. The government recognizes as evidenced in multiple reports that the legacy industry needs to adapt to the new value-driven environment or die. Delta and American have the potential of being industry leaders with global networks and customer driven products if both can emerge from their current situation - and AA is clearly much farther along the path. There will be no resistance to consolidation other than what exists to prevent market dominance in other industries because the pricing system is driven by the low cost carriers. Delta was built by acquiring other carriers throughout its history and will return to doing the same thing since DL has access to fewer unique international markets than any other carrier. Delta was also never given any special treatment or special route awards in contrast to AA, UA and a host of now defunct carriers.
This is the week Delta's future will be determined. I believe all involved will make the right choice. I believe we will know by the end of the week.
