Bleeding After Bankruptcy

It's my guess that Grinstein at Delta and Steenland at Northwest haven't been feeling too well as of late. Their airlines are bleeding red ink - especially at Delta, where the situation is critical. They put their airlines into Chapter 11 of the U.S. Bankruptcy Code on the exact same day. Perhaps they thought Chapter 11 would solve some of their problems. Perhaps they looked at United, which filed in December 2002 and is going to emerge soon. UAL projects $1 billion in profits by 2007 - which is optimistic at best in my opinion, but that's another post.

But interestingly enough, it may be the fact that it avoided bankruptcy a year ago that is hurting it so much today. In October 2004, management at Delta won over $1 billion in pilot pay cuts and an additional $1 billion in other costs. But with its losses now totaling $11 billion since 2001, things are going to have to change fast, and waiting a year might turn out to be too long. Things get worse, too. Its pilots are threatening to walk the picket lines, and they've learned lessons from United's trip through bankruptcy, where management in Chicago squeezed out a ton of concessions.

Delta has three ways out of this mess. The first is to do what United did - be nice to the unions. Or you can do the 'screw them' approach, like Northwest, which is to impose pay cuts. The final way is to continue what it's doing, and go under in a bit. But if the alarm bells aren't ringing in Atlanta, they should be now. Delta has lost $1.1 billion in bankruptcy, and that's been in the last two months. Someone over there's got to wake up and smell the jet fuel, so to speak, which is also dragging down income. If Delta doesn't change, they're likely to go under quick. |B762


Aaron Headly said...

My guess is that they're planning to hold on by their fingernails until some other trad carrier folds and then claim that the market will be then big enough to make them healthy again. My other guess is that they won't make it.