Delta Bankruptcy

[Jimbo in Ma.]

We Heard They Are Filing This Week, Will This Affect Our Flights In October?

[hdawson]

I've read that the filing will take place on Thursday. Probably after 4PM when the market closes. Today the stock price is in the penny stock price range. Down the road you can expect schedule changes and some cancellations of flights. Stay informed and up to date.

[gracecarmo]

will Delta continue to fly? I am starting to panic. We have flights to NYC and then back from London Gatwick in October. Our tickets are FF points, and will other airlines accept these tickets if no flights are available?

 

Grace

[Globaliser]

I wouldn't worry about October this year. For example, United Airlines has been in bankruptcy for almost three years now, more's the pity.

[DanJ]

There's talk they could ground up to 100 aircraft when they file. This will affect schedules obviously, but the planes they ground will be the older, inefficient shorthaul aircraft first, so overseas flights should be okay for now. Delta is in a much worse state than United has been, but that doesn't mean they will roll over and die too quickly. Of course, if Independence gives up the ghost like has been talked about since they changed their name to that, this might give Delta a bit of a boost.

[CruisinMaterial]

While I'm not flying Delta directly, I am flying their owned and operated subsidiary Song Airlines. I'm sure this product will continue to thrive as it is to be in direct competition with big names like JetBlue who have the seatback TV sets. I'm sure my flights from BOS are fine.

 

International flights should be fine for the forseeable future too because that's where all the bread and butter is now for the legacy carriers. The low cost air carriers have eroded the profits made when flying contiguous US so I know Delta as well as the rest in their restructuring plans were trying to get into the international market more.

 

As for grounding planes, I have a funny feeling that's inevitable. Wasn't independence air formerly Shuttle America?? I know Shuttle America renamed themselves but I'm not sure to what...

 

Just more fun 6 weeks prior to cruisin!

~Jake

[hdawson]

DanJ. Do you think AirTran may pick up some additional gates at Atlanta as Delta scales back some of their domestic flights? Seems likely to me. I know about a yr and a half ago AirTran was trying to get 8 more gates. Don't know what came of that.

[kenandlaura06]

I hope Song is okay...after much deliberation we booked our honeymoon flights on Song and it was really the only time that worked for us.

[eroller]

I would not worry about flights being canceled. This did not happen when UA and USAir filed, and there is no reason to believe it will happen with Delta either. There is a good chance that Delta will file bankruptcy this week, but I don't anticipate ANY disruptions to the customer or operations. It will be "business as usual" which is exactly how this type of bankruptcy is structured. It gives the airline the chance to reorganize *without* disrupting operations. Your flight will NOT be canceled, and the airline is *NOT* going out of business ... just reorganizing. Most, if not all changes that occur in this type of bankruptcy are invisible to the customer. For instance, the Delta frequent flyer program Skymiles will be unchanged, and miles will NOT be lost. Delta will retain it's founding position in the Skyteam alliance and I only see that alliance getting stronger. FYI, United and USAir are currently in bankruptcy, but still operating business as usual, and Continental has filed bankruptcy three times in the past and they are actually doing the best of the legacy carriers. What you may see happen in the future, is that Delta will combine with another legacy carrier like Northwest or Continental. This is what is happening with American West and USAir. A bankruptcy does make an airline more attractive to buyers and mergers since much of the debt is erased. Of course if this were to happen, it would not be for quite some time. Most airlines today do not have a the cash on hand to make large expenditures like buying another airline.

 

I'm hoping that Delta filing bankruptcy will be a good thing, as the intent is to emerge in a year or so as a much stronger airline. Delta currently has a good management team at the helm, and I have confidence they have a viable business plan in place for future profitability. In fact were it not for exorbitant fuel prices, Delta would have posted a modest profit during the last two quarters. The airline has a good plan in place to cut costs, but it's not enough when compared to rising fuel costs.

 

Ernie

 

ps - I don't anticipate "hundreds" of aircraft being grounded because of a bankruptcy, if any. Delta already has a plan in place to gradually retire older aircraft, and I don't see that changing. Also, I would hardly consider Delta in worse shape than United. UA may be doing better in the short term only because they have already filed bankruptcy, and they already have much of their debt erased. This makes it very difficult for carriers like Delta to compete since they are no longer on a level playing field. Now that it's likely that Delta will file, they will be in a better position to compete with airlines already in bankruptcy.

[BTfan]

DanJ. Do you think AirTran may pick up some additional gates at Atlanta as Delta scales back some of their domestic flights? Seems likely to me. I know about a yr and a half ago AirTran was trying to get 8 more gates. Don't know what came of that.

 

Delta is aggressively going after AirTran. They are adding service to here in Bloomington/Normal...the only place AirTran flew that Delta didn't.

[Lois R]

Another October cruiser here.

 

Ernie, thank you for the explanation:) I feel better after reading your

reply.

I didn't think they would go out of business (not in one month anyway).

 

I forgot that this means they can actually try and reorganize and fix the

problems.

 

Thanks again:)

[hdawson]

I have to admire Delta for it's effort to reformulate their service to copy JetBlue, AirTran and Southwest with their SONG airline. It's an effort.

But, 23 Billion is an awfully big debt load and it doesn't look like they can satisfy it. At 7:01 this evening Moody's downgraded their credit rating, again, already distressed junk status. JetBlue and AirTran are currently taking delivery of more than 100 NEW planes, each, and filling them as they come online. Fuel efficiency has never been so important. JetBlue, AirTran and Southwest ranked as best service by any domestic airline for 2004, and in that order. Those three airlines generally are making money. Katrina may temporarily effect that as it will for Delta and others. United ranked fourth and Delta ranked eleventh, just ahead of their other line Comair. When they negotiate debtor in possesion financing for Chap 11, Delta will not own any of their hard assets.

[eroller]

JetBlue, AirTran and Southwest ranked as best service by any domestic airline for 2004, and in that order. Those three airlines generally are making money. Katrina may temporarily effect that as it will for Delta and others.

 

 

 

Just curious, who were those rankings from? PLOG?

 

Currently JetBlue is dead last in ontime performance, and they are feeling the crunch just like other airlines. It will only get worse as their fleet gets older and requires more maintenance, and they expand to other markets which requires more resources. Likewise as their workforces becomes more senior, they will also face more challenges. The golden boy JetBlue is beginning to tarnish, which stock down almost $10 a share from the 52-week high.

 

Ernie

[eroller]

Another October cruiser here.

 

Ernie, thank you for the explanation:) I feel better after reading your

reply.

I didn't think they would go out of business (not in one month anyway).

 

I forgot that this means they can actually try and reorganize and fix the

problems.

 

Thanks again:)

 

Hi Lois,

I'm cruising in October as well, out of Honolulu and I'm flying Delta! I'm not worried. I do think there will be changes after the bankruptcy filing, but the last thing any airline wants to do is piss off it's customers and lose it's core business. I think the changes will come over time and be gradual. Delta will want to keep any passenger disruptions to a minimum directly after the filing.

 

Ernie

[DanJ]

That's the problem with Delta, is they don't really have much now. The $1.7 DIP financing supposedly lined up actually translates to $650 million, after a significant debt to GE that was meant to stave off bankruptcy last year is paid off. $650 mil doesn't carry a large airline like Delta, who is flying a lot of fuel guzzlers, very far. When United declared, they had a lot more unencumbered assets, which gave them a lot more debtor-in-possession money to operate with.

 

I don't see Delta giving up anything to AirTran in Atlanta. They've already announced a major cutback in service in Cincinatti, and the retirement of their 767-200 fleet as of Dec 1.

 

Also, what I hadn't heard when I posted this afternoon, was the ability of Delta's senior pilots to cash out their pensions and retire on a moment's notice. If they think their pensions are going to get dumped in CH11, they could jump now, knowing how much money they will get, instead of gambling that they will get more of a cut later. Of course, these pilots are the senior, long haul overseas pilots, and if a significant number go, schedules will get screwed up.

 

Jake, Independence was known as Atlantic Coast Airlines, a United Express carrier, until they decided to take their RJ's and go away.

[DanJ]

By the way, I'm also booked on Delta in January, and am not looking for alternate airfare at this point (although, I do have airline websites bookmarked LOL)

[hdawson]

eroller. Hope this helps.

http://www.msnbc.msn.com/id/7381076/

 

I believe these studies are done annually by a university contracted by the DOT.

 

Ernie. Where did you learn that JetBlue was dead last in on-time performance? This report shows them best of the field. I think just about all domestic airline stock is down considerably.

 

CAUTION: Investing in airline stocks can be hazardous to your financial health.

 

Is it true that if Delta's stock price stays below one dollar for 30 days it is subject to being delisted by the NYSE and moved to the pink sheets?

[eroller]

Thanks for the link. I don't put much faith in the various independent surveys as you don't know how they were conducted, what questions were asked, and exactly who they surveyed. Most of the airline industry uses PLOG as their benchmark, and these are the best results to accurately judge one airline against another.

 

In regards to JetBlue's performance, have a look at the DOT statistics. For the month of July (just released by the DOT), JetBlue's on-time performance was 19 out of the 20 airlines the DOT keeps track of. Airtran was last.

 

The DOT also keeps track of passenger complaints. For July, Delta was 12 out of 20, but #3 of the large legacy carriers. UA, AA, and USAir all had more complaints.

 

Delta is far from the best, but they are not the worst either.

 

Ernie

 

ps - as far as the stock being de-listed, it won't matter. They will have filed bankruptcy by then and the DL symbol will no longer be traded.

[eroller]

DanJ wrote:

When United declared, they had a lot more unencumbered assets, which gave them a lot more debtor-in-possession money to operate with.

 

Also, what I hadn't heard when I posted this afternoon, was the ability of Delta's senior pilots to cash out their pensions and retire on a moment's notice. If they think their pensions are going to get dumped in CH11, they could jump now, knowing how much money they will get, instead of gambling that they will get more of a cut later. Of course, these pilots are the senior, long haul overseas pilots, and if a significant number go, schedules will get screwed up.

====================================================

 

 

 

 

 

This is pretty much the case for *all* employees at Delta. An employee can retire on the first of any given month with one or two days notice. If I am not mistaken, the same applies to employees at most major US carriers as part of the Railway Labor Act.

 

I'm quite certain DL has thought about the pilot retirement situation, just as UA did when they filed. One option that DL and UA already do is hire the retired pilot back on a contingency basis until more pilots are brought onboard. The retired pilots are more than willing to do it since they actually collect retirement benefits while earning a monthly salary. It's like earning a double salary. I'm fairly certain DL would do this prior to disrupting the schedule.

 

In regards to DL's "fuel guzzlers" , well, no more than any other legacy carrier .... and probably less. NW probably has the oldest fleet with the highest fuel costs.

 

Back to UA, they may have had more unencumbered assets when they filed, but it hasn't done them much good. They have yet to emerge from bankruptcy and many labor issues loom in the background. UA's emergence has been pushed back a few times now, as the UA execs have yet to file an acceptable business plan that will turn the airline around. Something else Delta has in it's favor is a lack of unionization. There are only two unions at DL, the pilots and the Dispatchers and there has never been a strike in the history of Delta.

 

Ernie

[Globaliser]

Currently JetBlue is dead last in ontime performance, and they are feeling the crunch just like other airlines. It will only get worse as their fleet gets older and requires more maintenance, and they expand to other markets which requires more resources. Likewise as their workforces becomes more senior, they will also face more challenges. The golden boy JetBlue is beginning to tarnish, which stock down almost $10 a share from the 52-week high.

Back to UA, they may have had more unencumbered assets when they filed, but it hasn't done them much good. They have yet to emerge from bankruptcy and many labor issues loom in the background. UA's emergence has been pushed back a few times now, as the UA execs have yet to file an acceptable business plan that will turn the airline around. Something else Delta has in it's favor is a lack of unionization. There are only two unions at DL, the pilots and the Dispatchers and there has never been a strike in the history of Delta.

I don't know about the things that you say about jetBlue, but there is one well-known aspect which will come to weigh on them - the snapback clauses in their aircraft leases. For their startup period, they paid very little for their aircraft, and I wouldn't be surprised if the prospect of higher aircraft costs isn't having a real impact on the perception of their financial condition.

 

As for UA, at least they have now filed a plan. It may look like a highly unrealistic pie-in-the-sky plan, but there it is. We will see!

[DanJ]

I don't know how you can say that United's assets did them no good. It was those assets that allowed them to stay in business for 3 years under BK protection. CH11 doesn't automatically give you license to run up debts carte blanche (or everyone would do it). When the creditors stop seeing light at the end of the tunnel, they pull the plug.

 

Northwest's old fleet is also hurting them, but to a lesser extent than to Delta, because NW owns those planes free and clear (The DC-9's anyway). Operating costs are a lot lower when you don't have a mortgage to pay.

[eroller]

I don't know how you can say that United's assets did them no good. It was those assets that allowed them to stay in business for 3 years under BK protection.

 

 

 

 

 

Would your say this is the same reason why USAir has stayed in business so many years while in bankruptcy? I don't recall USAir having too many assets.

 

To be honest, I have no idea how many airplanes the airlines own, lease, or mortgage. I would assume when an airline states it's "owns" a plane, that it might actually be mortgaged?

 

I do know that as of June 2005, Delta owned 511 aircraft and leased 350 for a total of 869. This includes Comair and ASA (which of course has been sold now). I also see there are 46 aircraft mortgaged under an ETC deal.

 

Ernie

[hdawson]

This reported this morning. If there are going to be a 15% reduction in capacity I doubt they will be the international flights. So, to reach 15%, the bulk of schedule reductions will be domestic and at more than 15%.

 

AIRLINE STOCKS

 

Delta drops as upgrade boosts AirTran

 

By August Cole, MarketWatch

Last Update: 10:11 AM ET Sept. 13, 2005

E-mail it | Print | Discuss | Alert | Reprint |

 

SAN FRANCISCO (MarketWatch) -- The airline sector traded lower early Tuesday as Delta Air Lines shares dropped sharply for a second day on concerns it may soon file for bankruptcy.

 

J.P. Morgan upgraded AirTran to overweight from neutral but also slashed its rating on Delta stock to underweight from overweight, saying "changes in bankruptcy code, continued liquidity pressures, and a looming credit card holdback overwhelmingly suggest bankruptcy."

 

The brokerage's analysts believe a Chapter 11 reorganization filing is imminent and noted that Delta will likely reduce capacity by 15% -- a potential benefit to ATA Holdings Corp. (ATAHQ: news, chart, profile) , already in bankruptcy.

[eroller]

This reported this morning. If there are going to be a 15% reduction in capacity I doubt they will be the international flights. So, to reach 15%, the bulk of schedule reductions will be domestic and at more than 15%.

 

 

 

All speculation at this point. Analysts love to speculate, and more often than not they are wrong. Delta has already announced a reduction of domestic flying (mainly out of CVG) with a new emphasis on International flying and a large expansion to Latin America. There may be some other reductions, but that is not unusual at this time of year considering it's the slowest time along with January and February. Most airlines then ramp-up again in the Spring.

 

Ernie

[eroller]

Here is what another analyst at Bizjournal's thinks .... also along the lines of a 15% reduction, but not from Song or International. Even with a 15% reduction of domestic capacity, it pretty negligible with a network the size of Delta's. None the less it will be interesting to see what actually happens. Apparently UA and USAir also downsized by about 15% after filing bankruptcy, and that is where analysts are getting this info from.

 

Ernie

 

====================

 

bizjournals.com

Analyst: Delta will file Chapter 11, shrink

Tuesday September 13, 12:05 pm ET

 

 

A Delta Air Lines Inc. bankruptcy filing should be imminent, and the airline likely will shrink again after it files, an airline analyst predicted Tuesday.

"We estimate Delta will reduce capacity by 15 percent from current levels, approximating the shrinkage at United and US Airways," wrote JPMorgan Securities' Jamie Baker. Baker predicted Delta would not cut its international flights or Song, its low-price subsidiary.

 

Delta (NYSE: DAL - News) said last week it would cut 26 percent of its flights from Cincinnati/Northern Kentucky International Airport, or 150 flights. It is continuing plans to add flights between Port Columbus International Airport and Salt Lake City.

 

The news for Delta has not been good.

 

The carrier's pension fund is underfunded by $5 billion, with $450 million due this year. It has also cut 23,000 jobs over the last several years, outsourced cash-intensive operations such as airplane maintenance and delayed buying some planes.

 

Atlanta-based Delta was the busiest carrier at Port Columbus until July, when it was narrowly edged out by Dallas-based Southwest Airlines Inc. (NYSE:LUV - News). Delta carried about 20.3 percent of Port Columbus' passengers in July.

 

Published September 13, 2005 by Business First