Posted on 07/27/2005 10:19:27 AM PDT by Turbopilot
ATLANTA — Delta Air Lines Inc.'s transformation plan, which includes cutting annual costs by $5 billion by the end of next year, is not enough to save the struggling carrier, its chief executive said in a memo to employees that addressed renewed concerns about bankruptcy. The airline's shares plunged.
CEO Gerald Grinstein said in Tuesday's memo, which was obtained Wednesday by The Associated Press, that the nation's third-largest airline is still working hard to avoid a Chapter 11 filing, but he reiterated there are risks affecting Delta's ability to do that.
"In light of what we have accomplished together so far, there can be no doubt that Delta's transformation plan is delivering results," Grinstein said. "What is also clear is that is not enough."
Grinstein, citing the impact of high fuel prices and the interest expense on the company's massive debt, said Delta plans to expand its initiatives to cut costs, improve efficiencies and raise cash.
"Given our financial situation, there is renewed speculation about bankruptcy," Grinstein told employees. "We have been candid about the risk that a number of factors, some of which are beyond our control, will affect our ability to avoid a Chapter 11 filing. However, we are still working to pursue an out-of-court solution, even as we face increasing financial pressure."
Airline analyst Ray Neidl said Grinstein's comments in the memo and during a conference call with investors last week suggest that Delta is preparing people for the worst, even as it tries to keep that from happening.
"The market is becoming more dubious of Delta's chances of avoiding bankruptcy," said Neidl, of Calyon Securities. "I know I am."
Last week, Atlanta-based Delta reported a $388 million second-quarter loss, pushing its red ink to nearly $10 billion since early 2001.
Some analysts have speculated that if Congress doesn't pass meaningful pension funding reform by the fall, Delta will be forced into bankruptcy. But even Grinstein has noted that the airline has other equally pressing concerns, including hefty fuel costs.
In the memo, Grinstein acknowledged that it may be puzzling to Delta employees that, despite high fuel prices, several other legacy carriers who face the same problem as Delta were able to post modest profits in the second quarter.
"What's going on?" Grinstein said. "Simply put, it is in large part a matter of timing and competitive market challenges unique to Delta."
Also Wednesday, Delta said it is now offering customers who buy their tickets on the airline's Web site the ability to cancel certain tickets within 24 hours of purchase without penalty if they find lower fares on another carrier or if their travel plans change.
Many airlines charge fees for ticket changes.
Delta shares fell 47 cents, or 13.9 percent, to $2.92 in midday trading Wednesday on the New York Stock Exchange.
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On the Net:
Delta Air Lines Inc.: http://www.delta.com
The answer is simple. There is overcapacity, but no one is going out of business.
So everyone is losing money.
The free market answer is for the losers be liquidated, sending all the business to those remaining, who will them raise their fares.
I would add that the overcapacity element is the industry and
the goverments' doing. When I consider how many times flights I reserved were then cancelled because of "technical" difficulties (I read that to mean that two half full flights are cancelled to make one full flight), the aggravation of removing my shoes and shorts, the "request" that your check through baggage remain unlocked, etc, It's not that much longer just to drive. I do the Rochester, NY to Atlanta, GA trip several times a year.
"Some analysts have speculated that if Congress doesn't pass meaningful pension funding reform by the fall, Delta will be forced into bankruptcy."
Here's what they are complaining about. They want Congress to pass "meaningful pension reform", which means they want to get out of their pension obligations. There is a landslide of pension defaults starting around the US. Companies in this country want the feds to bail them out while the big boys keep getting theirs. These companies promised their employees pensions when they hired them, now they are trying to weasel out.
It's funny how cruddy airline CEOs and upper management never lose any of their perks, huge salaries and bonuses, and golden parachutes when they finally get the heave-ho, though.
Oh yes, we have the same thing going on where I work.
Actually, many of them often do.
Thats not the whole story. This is from the article.
In the memo, Grinstein acknowledged that it may be puzzling to Delta employees that, despite high fuel prices, several other legacy carriers who face the same problem as Delta were able to post modest profits in the second quarter.
There is more than oil and pensions going on here. Otherwise they would all (airlines) be under the gun.
Not at Delta, apparently.
http://www.cb.biztravelife.com/04/120204.htm
Yeah, funny.
Delta Air Struggle Raises Bankruptcy Fear (posted 5/11/05)
5/10/05 Associated Press Some have questioned whether I'm being 'too harsh' on the Unions in the past week or so. I don't believe I am. Rather (pun intended), the media is being to soft on them . For example, take this story. This reporter never even mentions that Unions are a major, if not the driving factor, behind Delta's bankruptcy: Delta last week said it faces about $3.1 billion in pension costs between 2006 and 2008. But a bill under consideration by the U.S. Senate would stretch out employee pension payments over 25 years, and could ease the airline's liabilities. Erm... What does the U.S. Senate have to do with Delta's employee pension plan?! Let me guess, thieving Senators are pork barreling, either to the demand of the company or the demands of the Union. In any case, this is similar to what is now happening with General Motors and Ford. The Unions demands for bloated pension and health care are bankrupting the companies. How do I know this? Well, besides the constant historical analogies that come to mind, let's travel back just over two years ago:
Pay Negotiations between Delta, Pilots Break Down,
7/24/03 USA Today - Negotiations between Delta Air Lines and its pilots, who are being asked to accept steep wage cuts, broke down Wednesday over what one union representative described as "philosophical" differences. The president of Delta Air Lines shot back that the company's cost structure was "not sustainable" and that labor expenses needed to be reduced dramatically in order to restore the carrier to health. Ha! What a fool! The President of Delta actually thinks that he should be allowed to run the company he is President of. The shareholders who selected the President and own the company must be kidding themselves if they think anyone runs this company except the Unions: He [a Union leader] also said that the union doesn't believe that pilot costs at Delta should be comparable to those at other major airlines that have recently restructured. <.> He added, "We stand ready to engage management when they appreciate the considerable value of pilot participation in the financial recovery of our airline." I always thought the value of an employee was determined by the employer, not the employee. In the latter case, we might suspect a small conflict of interest.... But Delta president and chief operating officer Frederick W. Reid said in a statement released late Wednesday that the company needs to follow the lead of other major airlines, such as US Airways, which emerged from bankruptcy, and American Airlines, which narrowly avoided a Chapter 11 filing. So, with this background we can now see what the journalists writing the first story missed. But there's more. Why do these Unions bankrupt industry after industry in an almost suicidal, systematic fashion? Because even if their employers go bankrupt they will get theirs:
United Air wins Right to Default on it's Employee Pension Plan
5/11/05 New York Times Ah... So that's what the US Senate has to do with Delta's pension plans! Yup, they were thieving and pork barreling alright. The NYT explains how taxpayers will pick up the tab for these bloated pension costs, even if the company goes under. Despite pleas by union lawyers, Judge Wedoff sided with United, which had insisted that it could not emerge from bankruptcy protection with its pension plans in place. The ruling releases United, a unit of the UAL Corporation, from $3.2 billion in pension obligations over the next five years. The federal agency that guarantees pensions, the Pension Benefit Guaranty Corporation, will assume responsibility for the plans, which cover about 134,000 people. <.> Analysts have predicted that if United won its case, there could be a domino effect as other airlines are forced to seek bankruptcy protection to bring their pension costs down to United's levels. That move would probably swamp the pension agency, which was created in 1974. Another pattern: Government, in the name of helping, hurts and under the guise of compassion, encourages and subsidizes. The private market would offer companies and individuals pension insurance, except it can't compete with the 'free' government deals brokered by our corrupt Congressmen.
So, as always, taxpayers will pick up the tab and the NY Times didn't bother to investigate the extent that cuts to pensions would even take place. The rest of the story describes how the Unions are thinking about striking to protest all this - even though it was their thuggary that brought about the bankruptcy in the first place and now, having ripped off their employers as much as possible, they are now stealing from your family. Sadly, Delta will be following this same path, with Ford and GM close behind. The Union scourge must be eliminated and no, I don't believe I'm being too harsh. (for more see: http://www.neoperspectives.com/unions.htm)
I know what you are saying, but why do those at the top always seem to pocket millions as they make bad management decisions, lay off people, and push for salary and benefits concessions from those at the bottom? Don't they have any shame?
Exactly right its the government interference that is messing with things, and hurting legitimate airlines. One would think after a 50 year struggle between communism and capitalism, where communism failed horribly we would learn.
Its pretty sad when the government is cheaping out on soldier pay, yet pork barrelling for rich union workers out of tax payer money.
I hear what you're saying, but the unions are not fully to blame. I work in a small company union and the big boys treat us like we don't exist. We are now over a year without a contract. We are still working but the company has pretty much denied that we exist. At our contract time last year, the company said here is what we have to offer you and that's it. We voted down the offer, but are allowed to continue to work. A strike is not an option. If we strike, the company will close the doors. No question about it.
This is RARELY done because of the aircraft routing, the pilots routing and the flight attendants routing (usually 3 different places) would all be screwed up if they just cancelled flights for the lack of people. Now, if the aircraft and crew did a "turn" ROC-ATL and back to ROC, then its possible that they would cancel for that reason, although "officially" it would be another reason.. . I've been on a prop plane with my wife and one other passenger, and been on a 150 person jet with 5 other people.
I know what you are saying, but why do those at the top always seem to pocket millions as they make bad management decisions, lay off people, and push for salary and benefits concessions from those at the bottom? Don't they have any shame?
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The market should set the price for labor. If you can get someone to do a job just as well for less then you should be able to fire the person who demands more for their labor. The same rules should apply to CEOs and workers. If a CEO can add millions to the stock of a company than maybe he should be paid millions. If you pay him more than he/she is worth then you are making your company less competitive. Those companies paying huge sums to execs will suffer the same fate as those paying huge sums to workers: bankrupcy.
"At our contract time last year, the company said here is what we have to offer you and that's it."
Who determines what the EMPLOYER will pay? I'd think the employer, considering it's his money. If they choose not to pay you what you're worth then you're free to go somewhere else where they will.
"We voted down the offer, but are allowed to continue to work. A strike is not an option. If we strike, the company will close the doors. No question about it."
My understanding of the labor laws is that, unfortunately, they can't fire unions for striking, or at least there are numerous provisions and regulations over what an employer can do with his own property and money when workers strike. Maybe what your describing is that the company will go bankrupt or relocate if there is a strike. If this is the case it adds to my point about unions bankrupting companies across America. Your company should be able to fire all of its workers and hire new ones freely. If it isn't paying its workers fairly then it won't be able to hire new ones for the reduced cost. Since, I don't know the peticulars of your situation, I'm not going to judge what the case is.
I agree with you. The employer calls the shots. I'm not a union supporter even though I belong to one. It's a closed shop so the only recourse is to work somewhere else. The only reason I'm still here is that this is the best money I can make in this area and I'm close to retirement, so I'm trying to get a pension before it disappears.
Actually, the company has had a record last year and just posted another record in sales and profits. They are trying to eliminate older more senior employees. We make about $5 more an hour than new hires. We also still have a pension plus better medical and vacations and perks. This union is not hurting the company at all.
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