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Is Delta Bankruptcy A Foregone Conclusion?

Fri Apr 09, 2004 12:23 pm

Of course, there's been a great deal in the media about Delta's financial woes. A couple of months ago, several DAL pilots said on this forum that they thought bankruptcy was inevitable.

Yet a recent AJC article quotes a pilot who said that, after Grinstein's personal appeals to pilot groups, a deal between DALPA and the company is more likely, even as the union begins preparations to enter Section 6 talks on a new contract.

That article is linked here:

I'm wondering if the DAL employees on the forum still feel bankruptcy is inevitable. And if so, when do you think the company is likely to file? Do you find any reason for optimism at all?

I remember the days, even in my 23-year lifetime, when Delta was a truly first-class airline: Employees with lucious Southern accents delivered "service and hospitality from the heart," as C.E. Woolman put it. Ah, for those days again.
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RE: Is Delta Bankruptcy A Foregone Conclusion?

Fri Apr 09, 2004 12:48 pm

It seems to me that DL has to do three things to survive.

First, it has to reach an agreement with its pilots. I have a friend who flies for AA, and the typical AA pilot earns less than half of a DL pilot with the same seniority flying the same aircraft. (Remember, AA's pilots never got a contract that matched UA's 2000 contract or DL's current contract.)

Second, DL, as well as the rest of the legacy carriers, have to get rid of the current fare structures. Passengers are willing to pay more to fly DL than B6 or WN, but not the astronomical fares that DL charges to fly with no advance purchase. HP has gone to a simpler fare structure and has done very well. AS has done the same, and figures it will be revenue neutral within a few months.

Third, DL has to offer more service than it currently offers. A friend recently flew ATL-ORD-ATL. Not only was there no meal service in coach, but first class had no meal service. AA still serves hot food in first on ORD-ATL. And with widebodies being pulled off many routes, that means no IFE.

I'm not suggesting that DL needs to start serving full meals as it did before deregulation, although I know people who still swear that DL had better grits than many diners and cafeterias in Georgia, but it has to make the flight experience worth the premium that it charges over LCCs.
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RE: Is Delta Bankruptcy A Foregone Conclusion?

Fri Apr 09, 2004 6:52 pm


I agree with point #1, but point #2 and #3 seem to be in conflict with one another.

I did a bit of searching and found that on the ATL-ORD-ATL itinerary you discuss, the fares are very competitive.

On a April 26 to April 29 mid week trip the fares to ORD range from $183 on AA and DL to $206 on NW. If you go to MDW, Airtran and DL have fares of $108. These fare are based on a booking today, so they're 14 day advance fares.

If we assume that a business traveller just found out today that they've got a meeting in Chicago next week, the fares for a April 12 through the 15 (midweek) trip are $409 on DL, UA and AA and $420 on NW. If you go to MDW the fares are $407 on DL and Airtran.

Finally a fare that leaves today and returns tomorrow is $289 to ORD and $287 to MDW. Where's the outrageous fare you mention?

So given that DL and Airtran charge the same (very reasonable) fare, how should DL with all its additional cost of maintaining a global network be able to offer superior service including hotmeals and still make a profit?

I'm assuming that DL's marketing department has set the fares to match fares of its LCC they believe that if they set them any higher, they'd lose business.

I'm tired of people claiming that service is what matters to travellers when time and time again, the market demonstrates that low fares are what gets them on the planes.

Look at the three most profitable and highly rated carriers in terms of customer satisfaction, Southwest, JetBlue and Airtran. On none of these will you ever get a hot meal, yet there planes fly full and more importantly profitable.

Now to answer the original question - I believe DL will eventually file bankruptcy. They have much more to gain than to lose. They'll write off a ton of debt and force the renegotiation of their labor contracts. Note that I say this as a DL shareholder that already lost about 60% of his investment so I don't take it lightly.
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RE: Is Delta Bankruptcy A Foregone Conclusion?

Fri Apr 09, 2004 10:44 pm

I don't think it is a foregone conclusion, but I do think it comes down to whatever agreement they do or don't reach with the pilots. I am not saying that the pilots need to singlehandedly give the airline the cash it needs to survive, I am saying that the pilots contract is the one area where DL may have no other choice in order to achieve any kind of cost savings. I think most of their creditors are willing to renegotiate debts outside of BK, the other employee groups are subject to what DL decides to pay them, and I don't know of any other major contracts that they would want to reject. In that case, the major benefit they would be able to achieve in CH 11 is rejecting the pilot contract, and starting from scratch with them.

Just my opinion. I hope they manage to avoid it personally.
A woman drove me to drink and I didn't have the decency to thank her. - W.C. Fields
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RE: Is Delta Bankruptcy A Foregone Conclusion?

Fri Apr 09, 2004 11:52 pm

Less than half is an exageration. For every pilot position, the AA pilots earn about 42% less. A large margin to be sure, but not less than half.
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RE: Is Delta Bankruptcy A Foregone Conclusion?

Sat Apr 10, 2004 12:47 am

We will get a lot more guidance next Wed when DL discusses Q1. I was looking at the results for Q4 and whole FY 2003, over the year salaries where ~45% of expenses, but for Q4 they were only ~41%. I don't have the breakdown on where that money goes, but a 15% decrease in salaries and the like would make up a large portion of the operating deficit.

In Q4 their Rev/ASM was $0.0907, while their Cost/ASM $0.1072. Fuel prices are going to hurt, they are averaging around $0.95 per gallon in the states currently. But DL predicts that 52% of the Q1 fuel needs are hedged at $0.801, or about ~$0.87 a gallon. Total system LF for March was 75% and YTD through March 70%.

It looks like DL has a cost and not a revenue problem.
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RE: Is Delta Bankruptcy A Foregone Conclusion?

Sat Apr 10, 2004 12:55 am

No. But if they do, it will likely follow closer to the 'prepackaged' Chapter 11 that TWA filed (and CO the second time, I think...). In other words, most their restructuring will be approved by the court prior to the actual filing.

Somehow, however, I doubt they'll even do that.

Maybe just wishful thinking. I was hoping UA wouldn't have to file either.