comaircvg
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Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:09 pm

I just watched a local TV station's news which stated that some experts (Whomever they may be) say that because of Delta's financial problems they are considering on selling one or more of their regional airlines (including Comair). Has anyone heard anything else about this?
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airways6max
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:14 pm

I think that's a good idea. Delta should sell off its regional subsidiaries and allow them to regroup as independent carriers with their own identity. For a long time, Delta and the other big airlines focused on providing mainline service and let regional airlines, such as Piedmont, Southern and Mohawk fly to the small airports. Delta should get back to flying mainline and international routes; narrow its focus. GMC has a slogan: Do One Thing, Do It Well. Delta and others should take that to heart.
 
DeltaMIA
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:14 pm

Being that they only own two it is safe to assume that Comair would be included in the one or more category, but they are too much a part of DL's operation to be sold.
It's a big building with patients, but that's not important right now.
 
nycfuturepilot
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:18 pm

If they did sell the airlines would pax on comair still be able to get skymiles and connect to DL flights?
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comaircvg
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:19 pm

I only say "including Comair" because I work for Comair. I've been quite downhearted since the news came out. I've grown up with Delta in Cincinnati and they are close to my heart. I've been proud to have Delta as part of Comair.
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Thrust
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:21 pm

I hope they don't sell all of them. But hey, if they need to recover, they need to recover.
Fly one thing; Fly it well
 
comaircvg
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 12:47 pm

Here is a copy of a news article in Cincinnati's newspaper, The Cincinnati Post...

Some aviation experts predict Delta Air Lines may sell off one or both of its regional airlines -- including Cincinnati-based Comair Inc. -- to slow its financial tailspin.
Analyst Raymond Neidl of Blaylock & Partners thinks Delta will ultimately sell one or both of the regional carriers to raise money. He noted rivals Northwest and Continental airlines have done the same.

"I think they're going to do that at the end of the day," he said. "There's no reason for them to hold on to them."

Delta, a major employer in Greater Cincinnati and Northern Kentucky, is awash in red ink and its cash on hand is being depleted. Chief executive Gerald Grinstein last week was peppered with questions from investment analysts about the airline's financial options as Delta announced it lost $383 million in another dismal quarter ending in March.

Grinstein downplayed the possibility of a spin-off or initial public offering of stock in the airlines, noting they add passengers to Delta's mainline network from smaller cities.

"We think they're essential," he said. "They feed our hubs and are integral to our operations."

But UBS analyst Sam Buttrick pointed out Delta doesn't need to own the airlines to continue using them to connect to points around the country. Delta could contract with Atlantic Southeast and Comair as it did before buying them.

"The economic benefit could be maintained without maintaining the equity position," he said.

Chris Lozier, an analyst with Morningstar, said such a deal could raise money but might not be enough to make a difference. He said Delta needs to address its uncompetitive operating expenses, such as its industry-leading pilots' salaries.

"They need to generate cash from operations to get themselves out of this hole," he said. "If you can't get a good price, it's not something you can just do -- even though you desperately need cash."

Other experts also stressed a sale of the regionals wouldn't solve Delta's inability to turn a profit or make much of a dent in its $20 billion in debt and long-term leases.

"It would be a Band-aid," said Paul Biederman, a professor at New York University and former Trans World Airlines chief economist. "It's what we did at TWA -- we just sold off assets until we didn't have anything."

Biederman said a sale could only buy Delta time. He said Delta should seek bankruptcy protection to renegotiate better terms for aircraft leases and pilots pay.

Still, other airlines have sold portions of their regional subsidiaries.

Last November, Northwest raised $299 million selling almost 89 percent of its regional carrier, Pinnacle, in an public stock offering. In 2002, Continental raised $300 million with an IPO of ExpressJet that left it with a 53 percent stake in the regional. It has sold off more of that stock since.

Neidl speculated Delta was holding off on a sale to get a better price, but predicted the airline could get only "a few hundred million for each" regional airline.

That would be a far cry from the $700 million Delta bought ASA for in 1999 and the $1.8 billion it spent for Comair in 2000.

Neidl predicted Comair would be a tougher sell because its costs are higher than its sister regional ASA.

Delta has sold other assets to raise cash. Last summer it raised $285 million from selling its 40 percent stake in Worldspan, a computer reservation system.

Spokesman John Kennedy said he wasn't aware of any discussions regarding selling or spinning off regional carriers at this time.

Grinstein has promised the investment community a comprehensive turnaround plan by the end of summer.

...What do all you real aviation experts think about this article?
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InnocuousFox
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 1:06 pm

Hey kids... do the math. If the network as a whole is losing money, the parts aren't going to fare any better. "Selling" Comair, for example, generates a little cash for the parent, but the mainline will still bleed. Also, Comair itself will still bleed. While you may gain some ground by narrowing the scope on the two, it really doesn't help that much... People making Delta decisions will still be making Delta decisions. People making Comair decisions will still be making Comair decisions. There are only a few places where those decisions overlap - and they will still need to be there anyway since the carriers will still be intermixed functionally.

It IS a patch and a PR move. It also helps to "compartmentalize" the airline so that one's legal woes don't hurth the other, etc.
Dave Mark - Intrinsic Algorithm - Reducing the world to mathematical equations!
 
scottysair
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 1:14 pm

Please don't make any losing with the money and it should make saving with the millions bucks. It will still able not sell with the aircraft. Tell Delta that need to make save with the money and don't make spent too much money with their own.
 
syncmaster
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 1:29 pm

I agree with InncouousFox, I question how much it would really help in the long run to sell them off, DL has a lot more power over the regionals by owning them, a lot more then they would have if they simply contracted their services. And if they spin-off a regional carrier that may well be part of the problem that means they will still have a problem after being let go, and will only provide a temporary patch for DL, who's costs are still fairly high.

Short-term: Good idea
Long-term viability: Fairly poor

[Edited 2004-04-21 06:30:21]
 
N77014
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 2:16 pm

I'm surprised this hasn't happened already. The regionals and their rapid growth for years have had their market value diluted in with the majors, Now the major has the chance to pay off bills or rectify underfunded pension issues with the available proceeds of a sell-off of the regional. As far as control; the majors are not interested in controlling the day-to-day functions of their regionals. A capacity buyout agreement would be drawn up by which the major purchases all of the regional's flying and markets them as their own; the major sets the marketing and schedule planning, the planes are painted in the major's colors, and the passenger couldn't tell the difference.


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flashmeister
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 2:26 pm

In their latest quarterly earnings conference call, DL management said that there were no short-term plans to offload the wholly-owned DCI carriers. Most Wall Street analysts are predicting that DL will end the year with about $2billion in cash. There's no crisis that would have them sell off the carriers... yet.
 
TWA902fly
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 2:32 pm

All of Delta's hubs are too much reliant on Delta Connection carriers for Delta to lose them... its like all of DFW and then so much of CVG and SLC... except SkyWest wouldn't be one of those so that's not too much of a problem. But DFW would have like 2 flights left...

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flashmeister
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RE: Delta May Sell Regional Airlines

Wed Apr 21, 2004 3:45 pm

It should be noted that if DL does decide to sell the DCI carriers that they own, they won't necessarily 'lose' their services. Look at what Continental did with ExpressJet. CO spun ExpressJet off, got lots of cash, and is still ExpressJet's only client. If DL does spin off Comair and/or ASA, I'm sure that the relationship with DL would continue.
 
InnocuousFox
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 12:42 am

Exactly... there will be a LOA drawn up between them long BEFORE the sale happens. They both rely on each other for survivial.
Dave Mark - Intrinsic Algorithm - Reducing the world to mathematical equations!
 
ScottB
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 1:26 am

The problem with the idea of selling off the owned Delta Connection carriers is that it doesn't solve the company's problems. It buys time by providing a cash infusion, but it's arguable that that isn't what the company needs, either.

Delta's primary problem at this point (and I know I'll get flamed for this) is labor costs. How can the company be competitive when their pilots are paid up to 73% higher than their peers at the other network majors? Check http://www.apapdp.org/pay.comparison.php for pilot pay rates at the U.S. majors. A transcon on a jetBlue A320 costs roughly $1000 less to operate than a Delta 737-800 based simply on pilot pay rates. Delta's first quarter labor costs were 49% of revenue; compare this to 40% at Southwest.

At this point, it would be simply burning the furniture to stay warm. And Delta's situation is different than the situation that Continental and Northwest found themselves in. After 9/11, CO had relatively weak liquidity and few assets to mortgage -- and its pensions were underfunded. Spinning off ExpressJet to help fund the pensions and generate cash helped Continental avoid a liquidity squeeze. Their business was fundamentally sound, and labor costs were reasonable, but we all know how poor the air travel market was for several quarters. Moreover, they had planned a spinoff of ExpressJet for some time. Northwest's situation was similar, with underfunded pensions and a lack of unleveraged assets, but at least NWAC had a bunch of cash on hand. Using Pinnacle stock to fund its pensions made more sense than drawing on the cash pile, especially considering that the company has little additional funding available beyond that.

The problem for Delta is that it seems the pilots are already convinced that the company will file for bankruptcy anyway, and they might as well make as much money as they can until the contract is rewritten in Chaper 11. The thing is, Delta would have shown an operating profit last quarter given 25% lower labor costs. If the company can't get labor costs under control, there's no point in selling off assets to delay a Chapter 11 filing -- they'd just be that much weaker post-bankruptcy.
 
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Aloha717200
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 1:37 am

I hope they don't sell their regional partners. Like the member above, I grew up with Skywest. Skywest, to the smaller cities to the north of SLC, IS Delta. If they sold Skywest, and let it become its own independent carrier, I bet UA would buy the rest of it, and us folks who enjoy flying Skywest into SLC would instead be flying Skywest into SFO.


And it doesn't make sense to me why they'd sell their regional partners. These provide enourmous feed into Delta's hubs. They make hubs like SLC and CVG viable. Sell that off and allow that traffic to go to someone else, and suddenly, CVG and SLC are not such great hubs anymore. The way that the West works is that there are alot of scattered, medium to small cities. None of which can support a mainline operation. But if you route them into a central location, now you have a good-sized base for operations. That what Skywest means to Delta in SLC.

If Delta sells Skywest, I think they will have no choice but to drop SLC. Without that feed, there is significantly less market.

[Edited 2004-04-21 18:43:01]
 
FlyPNS1
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 1:49 am

Aloha717200,

I think you are a little confused.

First off, SkyWest is an independent company. DL used to own a portion of SkyWest, but they sold it off. DL has a contract with SkyWest to provide services...just like DL has a contract with Chautauqua and ACA (at least for now).

If DL sells Comair or ASA, that wouldn't end the feed. Instead, DL would contract with Comair/ASA as if they are an independent company. DL could probably lock them into a long-term deal to provide exclusive feed for DL.

Look at CO...they sold ExpressJet off. However, they still have XJT's feed.



 
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Aloha717200
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 1:53 am

I thought Delta owned 51% of Skywest, and United 49%?


When did they sell their share?
 
SegmentKing
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 2:01 am

that's respective traffic information, not ownership...

Skywest is a publicly held & traded company on the Nasdaq or NYSE.. SKYW is their ticker..

-n
~ ~ ~ ~ pRoFeSsIoNaL hUrRiCaNe DoDgEr ~ ~ ~ ~
 
FlyPNS1
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 2:01 am

Delta Air Lines Sells Stake In SkyWest

ATLANTA, Oct 12, 2001 -- Delta Air Lines (NYSE:DAL) today reported that it has sold its stake in SkyWest Airlines (NASDAQ:SKYW). Delta sold 6.2 million shares of SkyWest common stock worth $125 million in a block trade pursuant to the Securities and Exchange Commission’s Rule 144. "Delta has an excellent relationship with our partner SkyWest," said M. Michele Burns, Delta’s executive vice president and chief financial officer. "This transaction in no way changes our operating relationship."

Delta’s goal is to become the No. 1 airline in the eyes of its customers, flying passengers and cargo from anywhere to everywhere. People choose to fly Delta more often than any other airline in the world on 4,813 flights each day to 370 cities in 64 countries on Delta, Delta Express, Delta Shuttle, Delta Connection carriers and Delta’s Worldwide Partners. Delta is a founding member of SkyTeam, a global airline alliance that gives customers extensive worldwide destinations, flights and services. In addition to safely and securely making reservations and purchasing tickets at delta.com, Delta customers can select seats, upgrade, get up-to-date flight information, make accommodations reservations, and more. U.S.-based travel agencies also can access Delta Web fares for their customers via delta.com’s Online Agency Service Center. For more information, go to delta.com.


 
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Aloha717200
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 2:10 am

So does UA still hold 49% of Skywest then?


 
FATFlyer
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 2:21 am

UA has never owned part of Skywest. Here is a list of the major shareholders in Skywest.
http://finance.yahoo.com/q/mh?s=SKYW
"Travel is fatal to prejudice, bigotry, and narrow-mindedness." - Mark Twain
 
FutureFlyer
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 2:43 am

I agree with InnocuousFox:

If Delta does end up selling ASA and Comair, it will only provide a temporary cash solution to a MUCH larger problem. They have to lower their labor costs...




FutureFlyer
 
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Aloha717200
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 7:25 am

I wonder where I read then that UA owned 49% and DL 51%. I remember reading it somewhere, but obviously, it was incorrect.
 
ssides
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 7:39 am

Spinning off the regionals might not be a bad move -- it worked very well for CO, and it didn't lose any feed. Even though flights wouldn't change much, such a plan can be good for operational efficiency.
"Lose" is not spelled with two o's!!!!
 
srbmod
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 7:56 am

In the current economy, a spinoff and an IPO for Delta Connection Inc. would not field too many investors. The sad thing is that ASA and Comair both had very good stock prices when they were both publicly traded companies, and the market value for DCI stock may be around $11 a share max if they were to be spunoff. ExpressJet was a successful spinoff, but it was spun off at just the right time so as to maximize interest in the company. A spinoff of DCI is a few years too late to really bring Delta the kind of money on their investment that they would want. Short of somebody with historic ties to either airline coming in and buying one or both of the airlines, nobody's going to be buying ASA or Comair. I heard rumors that the main reason why Delta increased their stake in ASA in the years prior to the buyout was to keep another airline from coming in and buying ASA (rumor has it that Valujet was looking @ buying ASA prior to 592, since Robert Priddy was one of the founders of ASA.) and Delta losing some important services @ ATL and DFW.
 
isitsafenow
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RE: Delta May Sell Regional Airlines

Thu Apr 22, 2004 9:12 am

Delta closed the market today at 6.77
FLEASHMEISTER..Delta ended 2003 with 2.1 billion in cash. They lost 382 million the first 90 days of 2004. That leaves apx 1.62 million in the till. Wall Street
says Delta should be down to 800 Million in Feb of 05 and thats the time to declare chapter 11. Now, if DL does start to sell off assists(like Pan AM did),
it gives them more cash to play with, BUT their worth diminishes because they are not as big. After selling of one or both the feeder carriers, next is to regress and cut down on the fleet. Pan AM lost $$$$$$ for 10 years and sold assets, routes, planes, you name it. Later, they just .......went away...
safe
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LUV4JFK
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 1:48 am

If they sell any of their regional airlines, they would only have about 5 flights to DFW.  Nuts

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panamair
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:17 am

Isitsafenow,

Delta ended 2003 with $2.7bn in unrestricted cash. The $382m loss in Q1'04 is a net loss that does not translate into pure cash outflow. That loss is reflected directly in the P&L statement. They ended Q1'04 with a $2.5bn in cash of which $2.2bn is unrestricted. This represents a decrease of $500m from 12/31/03, most of it used to fund pension schemes...
 
OttoPylit
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:20 am

IF Delta were to sell off ASA or Comair, thats not the end of it. Delta would still ensure they held a large stake in the operation, just like they did before ASA and Comair were bought.
I don't have a microwave, but I do have a clock that occasionally cooks shit.
 
isitsafenow
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:26 am

PANAMAIR
Thx for the comeback..Apparently we are reading different reports or different KIND of reports but they both are saying the same thing. There's a hole in barrel.
safe
If two people agree on EVERYTHING, then one isn't necessary.
 
flashmeister
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:26 am

Isitsafenow:

Delta ended the first quarter, 3/31/04, with $2.18billion unrestricted cash on hand (source).

Jamie Baker, of JP Morgan, wrote earlier this month that he expects that cash flow will be able to finance most of the non-operational costs between now and the end of the year, estimating DL's unrestricted cash balance on 12/31/04 at somewhere near $2billion. This was published in the latest issue of planebusiness.com, with attribution, and is probably available via other industry/investor coverage services if you want to look.

Remember that thanks to such a high volume cash flow, losses cannot be simply deducted from cash on hand to come up with a tidy balance. There's all sorts of ways to hide losses without hitting your cash reserves. Ask TWA about that one.
 
isitsafenow
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:32 am

I forgot to add my two cents worth in the last post.
DL is sick and hopefully the leaders can fix it. We lost TWA, Pan Am, Braniff and Eastern. These carriers were around American business for a long time and now they are gone. DL is heading in that direction. What puzzles me is that DL had the CEO, CFO, and president resign/retire all within 90 days. I don't think that happened with the other mentioned carriers that went away. That fact really bothers me on the survival of Delta. Maybe these people known something the rest of DL and the free world doesn't.
Just a comment, people.
safe
If two people agree on EVERYTHING, then one isn't necessary.
 
AVPOH77
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:41 am

Would that mean bye bye to my Flight benefits on Delta mainline? I'm a Comair employee who flys quite a bit on Delta mainline.
Fly Delta Jets
 
N6376M
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 5:47 am

I think they should do exactly the opposite. I think they should merge them into one operating subsidary and eliminate the duplicate costs.

Selling the RJ operations generates cash and gives you a one time benefit on the income statement but you'll then immediately have to start paying them to enter into contract to interface with your mainline operations. If the independent regional carrier is going to be public then it will have its own profit objectives which many not work well with what DL wants.

-76M
 
BR715-A1-30
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 11:32 am

Well, if you think about it, It could save DL money. Focusing on the mainline fleet, and pilots. As of now, it seems they are focusing more on the regional fleet. CRJs and FRJs, and ERJs. The regional pilots are getting more attention from Delta than they are their own executives. they may keep ASA though since they are both based in ATL and are practically neighbors to each other if you don't count the Renaissance Hotel sitting between the two buildings. But Skywest, and Comair just may have to go to save Delta's butt.
Puhdiddle
 
ord
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 10:50 pm

"What puzzles me is that DL had the CEO, CFO, and president resign/retire all within 90 days. I don't think that happened with the other mentioned carriers that went away. That fact really bothers me on the survival of Delta. Maybe these people known something the rest of DL and the free world doesn't."

The President (Fred Reid) and CFO (Michele Burns) were brought on by the CEO (Leo Mullin) I believe. Their loyalties were to Leo. When he left/was forced out it was clear they were not going to be a part of the future. The new guy wants his own people. (The fact Fred Reid was not elevated to CEO tells you the Delta board had little confidence in him and you knew it would be a matter of time before he left.)

And this happens all the time. As an example, when Howard Putnam came to try and save Braniff, he refused to go without his own guy in finance. That led Braniff to dismiss their very talented finance guy, who had made a lot of progress with lenders, after less than a year on the job.
 
Alpha 1
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RE: Delta May Sell Regional Airlines

Fri Apr 23, 2004 11:08 pm

. Look at what Continental did with ExpressJet. CO spun ExpressJet off, got lots of cash, and is still ExpressJet's only client.

CO got the money, and, no matter what ExpressJet does after their exclusivity with CO runs out, ExpressJet must commit a certain amount of their RJ's to CO for at least 8 or 10 more years, I beleive it it. I've heard two different numbers on how many a/c CO has committed to COEX, 275 RJs, and 475 RJ's. Not sure. ExpressJet can go and make a deal with anyone else AFTER that committed number of a/c is reached, but until then, CO still gets the benefit of feed and $$$ from COEX.

Not a bad deal. If DL can do something similar, it might help their bottom line.
 
elwood64151
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RE: Delta May Sell Regional Airlines

Sat Apr 24, 2004 4:46 am

Other than generating cash, what's the point? As I understand it, it's the regionals that are keeping DL afloat.

If they were smart, they'd keep the regionals, cut the number of gates they have at ATL, and move to a rolling hub operation.
Those who fail to learn history are doomed to repeat it in summer school.

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