comorin
Posts: 3857
Joined: Sun May 29, 2005 5:52 am

DL Employees Ch 11 Burden

Sun Sep 18, 2005 1:11 pm

Much has been said on A.net in the context of DL and NW's Ch 11 about free markets, 'investors' losing billions, and creditors stuck with heavy losses. I would like to add the usual 2c :

1. There are no free markets - just efficient and less efficient markets. That's because public policy sets economic ground rules, which trade off economic benefit for the public good. If we really believed in totally free markets, we would be auctioning off our children etc...

2. Shareholders are not really investors - they bought shares in the secondary market in the hope that prices would rise, and assumed the risk that they may not. If Delta's market cap lost a few billion dollars, it wasn't the same shareholders who took the whole loss - shares (and risks) get traded all the time. Nobody forced them to hang on to their shares.

3. Same for creditors. They lent money to make a profit, and priced the risk in. Also, they typically sell or participate out the loans in the secondary market. Secured loans can also get 'securitized' like bonds. Since money was lent with a default probability assumed, any sympathy here is also misplaced.

The only stakeholders who get burnt are Employees. You could say it reasonable to ask for pay cuts if fuel prices go up, but it could also be argued that employee pay cuts really fund debt service. To keep their jobs, employees will agree to any terms set. While an airline is very much the sum of its people, it's not clear if they have any say once Ch 11 is filed. Hopefully, they will get rewarded as the airline comes out of Bankruptcy,


Hope this is helpful.
 
AirRyan
Posts: 2398
Joined: Wed Mar 30, 2005 9:57 am

RE: DL Employees Ch 11 Burden

Sun Sep 18, 2005 1:58 pm

Good stuff. I was wondering how this new retirement savings works on airlines like NW who have recently gone from their pensions to a 401(k) plan - does the airline put in a % of an employees pay off the bat even w/ no employee contribution and if so, how is that any different from the pensions they used to have where evidently these pensions were not being funded as they should have?
 
m404
Posts: 1875
Joined: Tue Nov 25, 2003 4:43 pm

RE: DL Employees Ch 11 Burden

Sun Sep 18, 2005 2:33 pm

AirRyan

Right now NW is a non-matching employer on 401ks and as far as contract union employees are concerned I don't believe any plans have been completely hammered out yet. It's another story for salaried employees, one that I do not know. For the IAM this is at the heart of negotiations since so many are at or near retirement age. I do not know if the employees will have a choice on the percentages, minimums, investment vehicles, or anything else. Even if this information had leaked out the BK filing probably has thrown it all up in the air again.
Less sarcasm and more thought equal better understanding
 
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mariner
Posts: 18253
Joined: Fri Nov 23, 2001 7:29 am

RE: DL Employees Ch 11 Burden

Sun Sep 18, 2005 3:14 pm

Quoting Comorin (Thread starter):
They lent money to make a profit, and priced the risk in. Also, they typically sell or participate out the loans in the secondary market

I wouldn't dismiss "the creditors" quite so casually. The big banks are one thing, but the small vendors are something else:

http://www.denverpost.com/business/ci_3036521

As the link shows, they get burned, too. Sometimes much more than the airline employees.

mariner
aeternum nauta
 
jetdeltamsy
Posts: 2688
Joined: Tue Nov 14, 2000 11:51 am

RE: DL Employees Ch 11 Burden

Sun Sep 18, 2005 3:40 pm

Quoting Comorin (Thread starter):
The only stakeholders who get burnt are Employees.

What planet are you on? Vendors lose billions of dollars. And many Delta holdings are with institutional investors who have held the stock for decades.

Sure employees are going to lose billions as well, but we're hardly the only ones who will get burned.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
comorin
Posts: 3857
Joined: Sun May 29, 2005 5:52 am

RE: DL Employees Ch 11 Burden

Sun Sep 18, 2005 10:43 pm

Quoting Mariner (Reply 3):



Quoting Jetdeltamsy (Reply 4):

I totally agree, even though a 'purist' argument could be made that these vendors knowingly extended credit terms to a distressed firm.

While larger vendors can implement credit risk policies ( ie cash up front etc), many small vendors will get burnt disproportionately by BK.

Mariner, thanks for the link.
 
skibum9
Posts: 862
Joined: Sun Nov 04, 2001 1:13 pm

RE: DL Employees Ch 11 Burden

Sun Sep 18, 2005 11:04 pm

Quoting Comorin (Thread starter):
The only stakeholders who get burnt are Employees.

While I feel for the employees, this statement is not entirely true. Using your methodology, employment is at will. That means that the employees were free to leave at any time and pursue other careers. Further, the taxpayers will now get burnt to fund the under funded pensions.
Tailwinds!!!
 
comorin
Posts: 3857
Joined: Sun May 29, 2005 5:52 am

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 12:25 am

Quoting Skibum9 (Reply 6):
Further, the taxpayers will now get burnt to fund the under funded pensions.

Taxpayers funded the PBGC as a part of public policy to insure pensions. Like any other insurance company, its funding comes from premiums and not from taxpayers.

I agree that employees are at will technically, but they do at least deserve the sympathy afforded smaller creditors. However, I don't have the reasoning in place for this yet Smile

The score so far:

Deserving of Sympathy ('Burnt'):

Smaller Vendors
Employees

The Undeserving ('Unburnt'):

Shareholders
Taxpayers
Banks and Larger Creditors like GE


Question: What category should DL management be in?
 
bucky707
Posts: 954
Joined: Sat Aug 19, 2000 2:01 am

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 12:27 am

Quoting Comorin (Reply 7):
Taxpayers funded the PBGC as a part of public policy to insure pensions. Like any other insurance company, its funding comes from premiums and not from taxpayers.

taxpayers do not fund the PBGC. It is funded by premiums that companies pay. The worry is that the taxpayer may have to bail out the PBGC, as it will not have enough money to handle all the pension terminations going on......the premiums were never enough to handle what is going on now.
 
comorin
Posts: 3857
Joined: Sun May 29, 2005 5:52 am

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 12:38 am

 
Lono
Posts: 1136
Joined: Sun Apr 04, 2004 5:47 pm

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 9:43 am

Quoting Comorin (Thread starter):
To keep their jobs, employees will agree to any terms set.

Problem with DL employees is they have had the DL "kool Aid" drink for years...originating when DL had a history of taking care of their employees... hense no unions... now the non union DL employee is left out in the cold.... they have no choice but to accept the inevitable... they will go down with the ship... they have no bargaining power.... they are along for the ride be it successful or more likely tragic...
Wally Bird Ruled the Skys!
 
Gilligan
Posts: 1993
Joined: Mon May 02, 2005 12:15 pm

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 10:11 am

Quoting Lono (Reply 10):
they have no bargaining power.... they are along for the ride be it successful or more likely tragic...

So are the pilots and mechanics, as well as lower and middle management. In bk it has been proven time and again that a union will not help you.
Warm winds blowing, heating blue skies, and a road that goes forever, I'm going to Texas!
 
kellmark
Posts: 543
Joined: Thu Dec 21, 2000 12:05 pm

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 10:12 am

I have a lot of sympathy for all of the employees that have been affected by the difficulties of the airline industry. In fact I am one of them. I worked for Eastern Airlines for 23 years until it failed in 1991.

But it is a different view of things that I have now regarding some of what has been said here. There is no longer a "guarantee" for a job or a career in the airline industry. It is dynamic, difficult and competitive.

Also, employees are not without blame here. The outrageous pilot contracts at United and Delta had a lot to do with those particular companies' troubles. And I remember clearly the labor war at Eastern which resulted in its demise. It was not one sided. Both management and labor had plenty of blame to share.

But the sooner an employee realizes that they are in trouble the sooner they should make plans to protect themselves, such as looking for another job, perhaps in a related or other industry, or by upgrading their skills in some way and investing in their own retirement. I understand that it is difficult for an employee who puts in 5-10 years with a company to just up and leave. Seniority and geographics and opportunity or the lack thereof have a lot to say about whether it is good to leave or not. But the days of lifelong employment at one company with defined benefit pensions are pretty much over, and eveyone has to adjust accordingly.
 
Lono
Posts: 1136
Joined: Sun Apr 04, 2004 5:47 pm

RE: DL Employees Ch 11 Burden

Mon Sep 19, 2005 10:23 am

Quoting Gilligan (Reply 11):
So are the pilots and mechanics, as well as lower and middle management. In bk it has been proven time and again that a union will not help you.

True that... I have to wonder however if the ground troops were represented if the DL story would have been different.... would they have filled sooner when they had more assets..???
Wally Bird Ruled the Skys!

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