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WS Analyist "Delta Bankruptcy Possible"  
User currently offlineAlphascan From United States of America, joined Nov 2003, 937 posts, RR: 13
Posted (10 years 3 months 1 week 3 days ago) and read 4464 times:

From Air Transport World Online


Wall Street analyst sees possibility of Delta Chapter 11 filing
Dateline: Friday January 16, 2004

Delta Air Lines' new CEO Gerald Grinstein may be laying the groundwork for a possible Chapter 11 filing, Credit Suisse First Boston analyst James Higgins speculated in a report released Thursday, a day after Delta discussed its fourth-quarter and full-year 2003 financial results in a webcast

While stressing that "this is purely our opinion," Higgins stated, "We believe [Grinstein] effectively warned yesterday of a potential bankruptcy if pilot costs cannot be reined in." During the webcast, Grinstein stressed the need for a new agreement with pilots while Executive VP and CFO Michele Burns said that if the pilot cost structure was equal to restructured peers or low-cost carriers, Delta would have achieved near-breakeven results in the December quarter. It reported a net loss of $327 million for the period, or $207 million excluding special items.
Higgins also suggested that Grinstein's announcement that the carrier has begun a "full strategic assessment" of its business plan could be interpreted as "due diligence that will enable [Delta] to claim, justifiably, that they did everything possible to avoid Chapter 11, if it comes to that."

Higgins likened the airline's situation to that which faced American Airlines "in late 2002," approximately 3.5 months before American came within hours of a Chapter 11 filing, "although [Delta's] liquidity position is stronger"--it ended the quarter with $2.7 billion in unrestricted cash. The analyst also questioned the carrier's plan to grow capacity 8%-10% this year given softening revenue trends and "more than usual incremental low-fare competition."





I'm speechless.



"To he who only has a hammer in his toolbelt, every problem looks like a nail."
24 replies: All unread, jump to last
 
User currently offlineN6376m From , joined Dec 1969, posts, RR:
Reply 1, posted (10 years 3 months 1 week 2 days 23 hours ago) and read 4313 times:

Why shouldn't they file for bankruptcy? The CH11 rules in the US encourage companies to do it. They'll shed a bunch of debt, get out of any contract they don't consider favorable, force changes in pay amongst their employees and emerge like nothing happened. A & B will line up to sell them planes once they go shopping again.

Note, I'm a DL shareholder and I've realized (after losing about $8,000) that the mgt of this company could care less about its stockholders. Instead, keeping with what has become par for the course in corporate boardrooms, mgt has ensure that they're taken care of at everyone elses expense.

Skymile addicts like me will still fly them and they'll have a completely new cost structure.

I can't believe every major hasn't filed bankruptcy. To not do so puts you at a disadvantage to your competition.

-76M


User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 17
Reply 2, posted (10 years 3 months 1 week 2 days 22 hours ago) and read 4231 times:

If the bankruptcy route is used by all the "major" carriers to become competitive, then I'm all for Southwest and JetBlue filing so that the playing field can be truly "leveled".

User currently offlineDeltaSFO From United States of America, joined Nov 2000, 2488 posts, RR: 23
Reply 3, posted (10 years 3 months 1 week 2 days 22 hours ago) and read 4208 times:

If you guys think bankruptcy is a walk in the park, you're on crack.

AMR's desperate attempts to stave off Chapter 11 last year show how undesirable it really is.

Bankruptcy is an absolute last resort for anybody, including Delta. Hopefully it won't come to that.



It's a new day. Every moment matters. Now, more than ever.
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 17
Reply 4, posted (10 years 3 months 1 week 2 days 22 hours ago) and read 4139 times:

Nobody said it was a walk in the park. But one thing it does do is eliminate an awful lot of debt. Therefore, the playing field isn't "level" any more as the airlines who aren't at risk of bankruptcy are now competing with a full load of debt while the others are "starting clean".

User currently offlineUAL747DEN From United States of America, joined Dec 2003, 2392 posts, RR: 12
Reply 5, posted (10 years 3 months 1 week 2 days 22 hours ago) and read 4051 times:

Bankrupt companies do not get to "start clean" they still have to pay a certain percent of the debt back. They also have no control of the company anymore. Control goes to the creditor. They are also gambling with fate, if the creditor doesn't want to "reinvest" in the company then they don't have to and they will be forced to shut down and all assets sold so that creditors can get there money back. Bankruptcy is the last choice of any company and no one wants to go through that.


/// UNITED AIRLINES
User currently offlineN6376m From , joined Dec 1969, posts, RR:
Reply 6, posted (10 years 3 months 1 week 2 days 21 hours ago) and read 3956 times:

UAL747DEN -

You are incorrect on a bunch of stuff. In a Ch11 bankruptcy, the company (and the company alone) has a minimum of 120 days to present a restructuring plan to the bankruptcy court. This period can be extended. During that time, the company also has the rights to get out of contracts it doesn't like (effectively without consequence). If the company cannot put together a restructuring plan, the court can either have the creditors draft one OR the court can impose one.

The only debt that HAS to be paid is the secured debt or the creditor is free to seize the asset in which they hold the security in. Control doesn't go to the debtor, ownership does. Most of the time, the same pre-bankruptcy managment team stays (in fact retention bonuses to key employees of bankrupt companies are pretty common place).

As long as the plan has a snowball chance in hell, the court will accept the plan. Most of these plans end up paying unsecured creditors pennies on the dollar for their debt. Secured creditors usually take some sort of haircut on their debt and gain equity in exchange.

The end result is that the company usually wipes out a substantial amount of debt, restructures payments on another sizable portion, usually pushing the maturities out quite a long time, and gets out of contracts (including labor agreements that it doesn't find beneficial).

If creditors really want to be hardasses about this, they can try to force the company in CH 7 liquidation during which all the companies assets will be sold and creditors will receive proceeds based on the order proscribed in the bankruptcy code. Typically secured creditors get something and unsecured get nothing.

Now given the depressed market for airplanes, do you think that the secured creditors really want to take possession of DL 757 / 767 / MD80's and older 737's? They'd take a bigger loss selling them than they would by working with DL to restructure the debt and debt service. Furthermore, by writing off much of the unsecured debt, the company frees up cashflow that it can use to pay the secured creditors.

The likelihood of the bankruptcy court allowing a major employer like DL to be forced into Ch 7 is none. Creditors will play ball, the current shareholders will see the value of their stock drop to zero, management will get retention bonuses, labor will have new contracts crammed down on them and DL will continue to fly.

Obviously this is a vast simplification but even companies like Enron, Worldcom, HealthSouth, Parmalat, Halliburton and United are still in operations today notwithstanding the fact that they are in bankruptcy.


User currently offline767-332ER From United States of America, joined Mar 2001, 2030 posts, RR: 11
Reply 7, posted (10 years 3 months 1 week 2 days 21 hours ago) and read 3925 times:

I agree with DeltaSFO, it isn't a walk on the park...I mean from one standpoint look at the burden in terms of marketing that it gives out to passengers. Passengers would be hesitant upon the image of a company that has filed for Chapter 11. I pray that Delta won't come to that...


Twinjets...if one fails, work the other one twice as hard!!!
User currently offlineFlashmeister From United States of America, joined Apr 2000, 2896 posts, RR: 6
Reply 8, posted (10 years 3 months 1 week 2 days 20 hours ago) and read 3829 times:
Support Airliners.net - become a First Class Member!

Most of the time, the same pre-bankruptcy managment team stays (in fact retention bonuses to key employees of bankrupt companies are pretty common place).

Which is part of the problem. If the &%&#@*'ed it up the first time, why should they be empowered to do it again?


User currently offlineUAL747DEN From United States of America, joined Dec 2003, 2392 posts, RR: 12
Reply 9, posted (10 years 3 months 1 week 2 days 19 hours ago) and read 3795 times:

N6376M
You are basically saying exactly what I did in different words! If the creditor wants to take back the merchandise they can however if they feel that it would be more profitable for them to work with the Chap. 11 company they have the option to do that. When a company uses Chap. 11 there is a Board of Creditors set up and any creditor that is owed a substantial amount of money and approved by the court that wants to sit on this board can. The board also includes people from the company in Chap 11. This board then decides how debit is to be paid back and what the company will do to restructure. They than take these ideas to the court for approval, so NO the chap 11 company does not have total control of everything and cannot just pick and choose what they will pay creditors. The creditors do get the short end of the stick of course however they do have a say so in what the company does.... (I sat on the board of a Chap 11 company last year to help represent our development team)



/// UNITED AIRLINES
User currently offlineNicollo From United States of America, joined Jan 2004, 49 posts, RR: 0
Reply 10, posted (10 years 3 months 1 week 2 days 17 hours ago) and read 3576 times:

I bet, Gordon Bethune will be their next CEO...  Smile


User currently offlineAA717driver From United States of America, joined Feb 2002, 1566 posts, RR: 13
Reply 11, posted (10 years 3 months 1 week 2 days 17 hours ago) and read 3575 times:

How's USAir doing? Howabout UAL? Maybe TWA is a good example...

For the 100th time, Ch. 11 must be avoided for any company not wanting to be a financial basket case for the next 10 years. In this competitive environment, a Ch. 11 company will even have trouble lining up DIP financing. The RSA is in serious danger of losing its gamble on USAir. The major financial companies are tapped. AA hesitated filing Ch. 11 partly because DIP financing might not have been available.

You pay "full retail" for everything--usually cash on the barrelhead. You don't get paid for tickets until they're used(unlike healthy companies that get the money when the tickets is issued). Huge cash drain.

You seriously cut staff which hurts morale. Whether you go 1113 on the union contracts or not, you at least threaten it, it destroys morale.

If you don't give golden parachutes, you lose senior managers(the same people who lamented the lack of loyalty to the company a few months ago when lambasting the unionized workforce... Insane). If you do give golden parachutes, forget getting the workers to cooperate(where is Don Carty today?).

Bottom line is that anyone who thinks Ch. 11 is a positive move for a company that doesn't absolutely have to do it hasn't been paying attention for the past three years.TC



FL450, M.85
User currently offlineSTT757 From United States of America, joined Mar 2000, 16694 posts, RR: 51
Reply 12, posted (10 years 3 months 1 week 2 days 13 hours ago) and read 3424 times:

" But one thing it does do is eliminate an awful lot of debt."

A DL bankruptcy filing would have nothing to do with debt, rather it would be a way to "force" concessions on their pilots union who so fare have been not open to giving up their "industry leading" contracts.

DL pilots are now the highest paid in the industry, their CASMs are too high and DL would not make it in the long run against the LCCs or even AA, UAL, CO who have lowered their CASMs.

And the idea of Gordon taking over DL would work if CO "joining" DL were part of the deal, if DL can get their CASMs down to CO's level then perhaps Gordon can oversee a marriage which has gone to the Alter on atleast 4 occasions since 1996.




Eastern Air lines flt # 701, EWR-MCO Boeing 757
User currently offlineB4real From United States of America, joined Aug 2003, 2613 posts, RR: 6
Reply 13, posted (10 years 3 months 1 week 2 days 13 hours ago) and read 3411 times:

Some hot stuff related to this:

http://www.airliners.net/discussions/general_aviation/read.main/1349971/



B4REAL, spelled like it sounds
User currently offlineMD88Captain From United States of America, joined Nov 2001, 1329 posts, RR: 21
Reply 14, posted (10 years 3 months 1 week 2 days 13 hours ago) and read 3411 times:

STT757. DAL's BK will have everything to do with debt. 11B in debt. Unsustainable debt.

User currently offlineDeltaGuy From , joined Dec 1969, posts, RR:
Reply 15, posted (10 years 3 months 1 week 2 days 12 hours ago) and read 3296 times:

It's just a ploy to get DALPA to anty up the money...simple as that. Management is turning awfly aggressive for this!

DeltaGuy


User currently offlineOkie From United States of America, joined Jul 2003, 2854 posts, RR: 3
Reply 16, posted (10 years 3 months 1 week 2 days 11 hours ago) and read 3240 times:

I am with you DeltaGuy
IMO, Just Sword Rattling to get concessions from the employees.
AMR and everyone else getting concessions, Delta wants some also.


User currently offlineGnomon From , joined Dec 1969, posts, RR:
Reply 17, posted (10 years 3 months 1 week 2 days 10 hours ago) and read 3143 times:

Perhaps the pilots on this forum can explain this to me. I'll be blunt: I'm unclear on how "better management" can solve the problem of Delta's CASMs being the highest in the industry. Being a bit of an amateur one myself, I know pilots are a smart bunch. But I'm just not seeing the pragmatism/realism/logic in their staunch refusal to take one for the team and bear a pay cut for the company's survival.

I think most reasonable people agree: Something's got to be cut. Or, at the very least, most agree that the airlines are going to have to rewrite their business plans, embracing the successful low-cost model. That means cutting costs. So what do the Delta pilots think should be cut, instead of their pay? It seems we hear a lot of generalities about the incompetence of management, but we never hear any specific proposals to get the costs down. No great 21st-century business model will survive on top of a CASM that far exceeds that of the nearest competitor. And labor costs, according to Delta and every other airline that has gone down this road, account for the highest costs.

It's a different world now; pilots just aren't worth $200,000 a year like they once were. That's the grim reality -- you can thank WN, B6, FL, et al for that. Delta pilots: The day your flight school classmates started working at LCCs for half your pay, your market value went down. Your 737-800 cockpit is no more challenging -- and thus demands no more money in wages -- than the 737-700 flight deck in which your buddies at WN work. In fact, I hear WN has even disabled VNAV on its 73Gs, which means those guys and girls actually work a bit harder sometimes.

I feel like this reality is just the way the world works. You didn't become a pilot to get rich, did you? Everyone says they chose this job not for the money, but for the fun of it, right? So you may have to accept the fact that, yes, the market value of your work has actually decreased. This isn't the first profession to have suffered that fate, and it probably won't be the last. Believe me, no one is more saddened about the whole situation than me, a guy who grew up dreaming of nothing more than flying heavy metal one day.

But wait -- there's got to be another solution. How about reducing management's pay? After all, they're just a bunch of bloody incompetents with MBAs and law degrees anyway! For some mysterious, unspecified reason, Leo Mullin just wanted to run Delta into the ground and get himself fired by the board! Sure, you could do cut management's pay. But doing the math, I don't see how that would make much of a dent in Delta's $700+ million loss last year. And you certainly wouldn't be able to retain the brilliant minds necessary to effect a turnaround. Hell, if I had a degree from Harvard or Wharton, it would take A LOT of money to lure me from Trump Tower to a cash-strapped airline struggling to stay airborne with labor strife out the wazoo. Sorry, but that's the reality of the marketplace. If you want the minds necessary to deliver the results, you've got to pay them, maybe link their compensation to the company's financial performance. But to start off, pay big bucks in salary. Benefits. Yes, even bonuses. Call it an investment in future earnings.

Call me an industry sympathizer, but I think the rest of the world is in agreement that pay concessions COMBINED WITH a streamlined low-cost business model are the only way to achieve the cost results demanded by management. Not to be a bit of an armchair CEO here, but I can't think of any other way. It's logical: If labor costs are the highest costs, then labor costs have to be cut. Then concentrate on growing the business. What say you, union members? Maybe I'm just confused. Or maybe I just want to be flamed, talking like this on this forum. In any event, I'd love to have some dialogue about this. It's a fascinating problem that's come up in every unionized industry in economic history at some point.


User currently offlineN6376m From , joined Dec 1969, posts, RR:
Reply 18, posted (10 years 3 months 1 week 2 days 5 hours ago) and read 3030 times:

UAL747DEN - You are basically saying exactly what I did in different words!

Not! The company doesn't control itself either before or after a bankruptcy. Shareholders, through BOD's control companies.


a Board of Creditors set up and any creditor that is owed a substantial amount of money and approved by the court that wants to sit on this board can. No. A creditor's committee is set up. Representatives from creditors are appointed. Not everyone who wants to can get on the committee -typically only the top 7 unsecured creditors get on the committee.

The company does have an exclusive 120 period to come up with a restructuring plan and they can pick what contracts to get out of.

If creditors don't approve a reorg plan, they can come up with their own. However, the court can reject it. The court can all "cram down" a fair and equitable plan on dissenting shareholders.

I suggest you actually read Chapter 11 of the US Bankruptcy code.

As for you serving on a creditors committee, I highly doubt that based on your profile.


User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 17
Reply 19, posted (10 years 3 months 1 week 2 days 5 hours ago) and read 3017 times:

Perhaps the pilots on this forum can explain this to me. I'll be blunt: I'm unclear on how "better management" can solve the problem of Delta's CASMs being the highest in the industry. Being a bit of an amateur one myself, I know pilots are a smart bunch. But I'm just not seeing the pragmatism/realism/logic in their staunch refusal to take one for the team and bear a pay cut for the company's survival.

Maybe they'd be willing to "take one for the team" just as soon as the executive offices "take on for the team.

Here's the bottom line on "Better managment": Delta wants pilot concessions. Here's the pay for the top execs:

Leo Mullin, 60 Chairman $ 4.76M N/A
Gerald Grinstein, 70 CEO, Director N/A N/A
Frederick Reid, 52 Pres, COO $ 2.29M N/A
M. Michele Burns, 45 CFO, Exec. VP $ 1.51M N/A
Robert Colman, 57 Exec. VP - HR $ 1.17M N/A

Compare that to Southwest (since they are the largest LCC):

Herbert Kelleher, 71 Chairman $ 652.00K
Colleen Barrett, 58 Pres, COO, Sec., Director $ 616.00K
James Parker, 56 Vice Chairman, CEO $ 536.00K
Gary Kelly, 47 CFO, Exec. VP $ 449.00K

It's pretty simple really, Delta wants their costs in line with Southwest and other LCC's, but the execs pay is not in line with Southwest and other LCCS. Change starts at the top, but rather than cuts, most executives are being granted very lucrative "retention bonuses". If you want a group to take one for the team, start with the head coaching staff.



User currently offlineFFlyer From United States of America, joined Nov 2001, 732 posts, RR: 0
Reply 20, posted (10 years 3 months 1 week 2 days 4 hours ago) and read 2978 times:

Gnomon; Posting of the Month Award goes to you!

User currently offlineFunFlyer From United States of America, joined Aug 2003, 866 posts, RR: 0
Reply 21, posted (10 years 3 months 1 week 2 days 2 hours ago) and read 2904 times:

I don't think they will file for chapter 11. I think DL is a strong airline, and will pull through. (even if they are losing money).


Who cares about status?
User currently offlinePlanemaker From Tuvalu, joined Aug 2003, 5925 posts, RR: 34
Reply 22, posted (10 years 3 months 1 week 2 days 1 hour ago) and read 2868 times:

Gnomon:

Good post! You hit the nail on the head. I know lots of pilots flying exec, freight, back woods, etc. that would LOVE to fly heavies and who would be overjoyed at receiving less than half of what Delta pilots make. The pilot unions should be charged under RICO.  Smile


[Edited 2004-01-17 17:03:50]


Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
User currently offlineGnomon From , joined Dec 1969, posts, RR:
Reply 23, posted (10 years 3 months 1 week 1 day 22 hours ago) and read 2779 times:

Planemaker --

I agree completely. Unions initially were formed to ensure decent working conditions and occupational health and safety. Clearly, they've lasted far past the end of their useful life. Now, the union is but a tool for an employee group to demand extra-market wages and compensation that far exceeds what that group is actually worth in terms of output.

As for the idea of management needing to take a pay cut to put DL management on par with the execs over at WN and other LCCs, well, that would be an idealistic gesture in theory, but it would have little practical value. That's an impractical, relativist proposition that would have little real impact on the bottom line. As I said in my original post, the $4 million between Leo and Herb wouldn't do much to trim Delta's massive $700+ million loss. The significant difference between pilot wages at the two carriers, however, would. Pilots can get caught up on the idealism of a proposition like that and intellectualize the debate all they want, but until they themselves are willing to take pay cuts, no one's going anywhere but federal court in Atlanta. I'm sorry it's turned out this way -- I wish it hadn't -- but the time draws nearer every day when, if pilots don't accept that reality, they'll be jobless, and some of my old flight school buddies will be sitting in their seat for a fourth of the money. Welcome to 2004, ladies and gentlemen.


User currently offlineCessnababe From United States of America, joined Jan 2004, 39 posts, RR: 0
Reply 24, posted (10 years 3 months 1 week 1 day 20 hours ago) and read 2710 times:

A more "humorous" Ch 11 story. The good old Mustang Ranch in Nevada. For eight year period of time, from 1882 until 1990, while it was under bankruptcy property under Chapter 11, the bankruptcy courts--part of federal government--managed a brothel. The old owner kept the books and over the eight years the remaining biggest creditor became the I.R.S. The property was seized by the I.R.S which became its direct owner. Within a year the property was sold for $1.5 million, a far cry from the $13 million owed in taxes. The Ranch was back in business, rescued by actions of caring federal government. The ASSets clearly didn't cover the debts.

 Smile


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