Another UAL in the making...?
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Another UAL in the making...?
Current issue of Speednews...************** COVER STORY: DELTA RUNNING ON FUMES **************
Delta announced this week that if it is unsuccessful in further reducing its operating expenses and continues to experience significant losses, the airline will need to seek to restructure under Chapter 11 of the U.S. Bankruptcy Code.
Delta says it does not expect to achieve the full $5b in targeted benefits under its transformation plan until the end of 2006. In addition, it continues to face significant challenges due to historically high aircraft fuel prices, low passenger mile yields and other cost pressures. Accordingly, it believes that it will record a substantial net loss for the nine months ending December 31, 2005, and that its cash flows from operations will not be sufficient to meet all of its liquidity needs for that period.
It adds that its ability to fund its obligations and maintain adequate liquidity for the nine months ending December 31, 2005, will depend on a number of factors outside of its control, including the level of aircraft fuel prices and passenger mile yield; the terms of renewal or replacement Visa/Mastercard processing contract; and other factors. Because substantially all of its assets are encumbered and its credit ratings are low, it does not expect to be able to obtain any material amount of additional debt financing. Unless it is able to increase revenues, further decrease costs, sell assets or access the capital markets by issuing equity or convertible debt securities in sufficient amounts to offset those factors outside its control, Delta expects that its cash and cash equivalents and short-term investments will be
substantially lower at December 31, 2005 than at March 31, 2005.
Its current GE Commercial Finance Facility and its financing agreement with Amex include covenants that are based on its business plan and impose substantial restrictions on financial and business operations, including covenants that require the airline (1) to maintain specified levels of cash and cash equivalents and (2) to achieve certain levels of EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rent, as defined) ("EBITDAR Covenant").
As of March 31, 2005, Delta was in compliance with its financial covenants. However, it says that there is significant uncertainty whether it will be in compliance with all of these covenants in the near-term or in future periods due to:
-The volatility of fuel prices, which remain at historically high levels.
-The expiration of Delta's current Visa/MasterCard processing contract in August 2005 and the likelihood that renewal or a replacement processing contract will require a significant cash holdback to cover the processor's exposure for tickets sold, but not yet flown.
-The potential that other assumptions underlying its business plan may be incorrect in any material adverse respect. Many of these assumptions are not within the airline's control, such as passenger mile yield, actions by competitors, pension funding obligations, interest rates, the achievement of all of the approximately $5b of targeted benefits (compared to 2002) of the airline's transformation plan, and access to financing.
Delta concludes that if it continues to experience significant losses, it would need to seek to restructure under Chapter 11 of the U.S. Bankruptcy Code; and a restructuring under Chapter 11 may be particularly difficult because Delta has pledged substantially all of its remaining unencumbered collateral in connection with transactions completed in the December 2004 quarter as a part of its out-of-court restructuring.
________________
It would appear that another US airline domino is about to fall.
Delta announced this week that if it is unsuccessful in further reducing its operating expenses and continues to experience significant losses, the airline will need to seek to restructure under Chapter 11 of the U.S. Bankruptcy Code.
Delta says it does not expect to achieve the full $5b in targeted benefits under its transformation plan until the end of 2006. In addition, it continues to face significant challenges due to historically high aircraft fuel prices, low passenger mile yields and other cost pressures. Accordingly, it believes that it will record a substantial net loss for the nine months ending December 31, 2005, and that its cash flows from operations will not be sufficient to meet all of its liquidity needs for that period.
It adds that its ability to fund its obligations and maintain adequate liquidity for the nine months ending December 31, 2005, will depend on a number of factors outside of its control, including the level of aircraft fuel prices and passenger mile yield; the terms of renewal or replacement Visa/Mastercard processing contract; and other factors. Because substantially all of its assets are encumbered and its credit ratings are low, it does not expect to be able to obtain any material amount of additional debt financing. Unless it is able to increase revenues, further decrease costs, sell assets or access the capital markets by issuing equity or convertible debt securities in sufficient amounts to offset those factors outside its control, Delta expects that its cash and cash equivalents and short-term investments will be
substantially lower at December 31, 2005 than at March 31, 2005.
Its current GE Commercial Finance Facility and its financing agreement with Amex include covenants that are based on its business plan and impose substantial restrictions on financial and business operations, including covenants that require the airline (1) to maintain specified levels of cash and cash equivalents and (2) to achieve certain levels of EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rent, as defined) ("EBITDAR Covenant").
As of March 31, 2005, Delta was in compliance with its financial covenants. However, it says that there is significant uncertainty whether it will be in compliance with all of these covenants in the near-term or in future periods due to:
-The volatility of fuel prices, which remain at historically high levels.
-The expiration of Delta's current Visa/MasterCard processing contract in August 2005 and the likelihood that renewal or a replacement processing contract will require a significant cash holdback to cover the processor's exposure for tickets sold, but not yet flown.
-The potential that other assumptions underlying its business plan may be incorrect in any material adverse respect. Many of these assumptions are not within the airline's control, such as passenger mile yield, actions by competitors, pension funding obligations, interest rates, the achievement of all of the approximately $5b of targeted benefits (compared to 2002) of the airline's transformation plan, and access to financing.
Delta concludes that if it continues to experience significant losses, it would need to seek to restructure under Chapter 11 of the U.S. Bankruptcy Code; and a restructuring under Chapter 11 may be particularly difficult because Delta has pledged substantially all of its remaining unencumbered collateral in connection with transactions completed in the December 2004 quarter as a part of its out-of-court restructuring.
________________
It would appear that another US airline domino is about to fall.
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Correct me if I am wrong, but didn't DL sell SWA a huge part of their fuel contract? I keep hearing this over and over...
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Union Goon
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yep I heard that too.
Hedges take a good credit rating plus a lot of cash. Get your self in trouble and the hole gets deeper and deeper.
But worse, the focus on the QUARTERLY report rather than the long view has meant that management of most miss managed companies don't care about things in the future (like fuel hedges) when they can pump up the quarterly report a few more dollars right now and get some bonuses TODAY, rather than making the company healthy in the future.
Don cAArty was emblamatic of that at American. Play stupid short term games, to get the stock price up this week, and mortgage the future. But he certainly made HIMSELF rich doing it, even if he chewed up 20 billion in equity at AA in the process for his 20 million in bonuses.
Cheers
Wino
Hedges take a good credit rating plus a lot of cash. Get your self in trouble and the hole gets deeper and deeper.
But worse, the focus on the QUARTERLY report rather than the long view has meant that management of most miss managed companies don't care about things in the future (like fuel hedges) when they can pump up the quarterly report a few more dollars right now and get some bonuses TODAY, rather than making the company healthy in the future.
Don cAArty was emblamatic of that at American. Play stupid short term games, to get the stock price up this week, and mortgage the future. But he certainly made HIMSELF rich doing it, even if he chewed up 20 billion in equity at AA in the process for his 20 million in bonuses.
Cheers
Wino
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Delta, an accident waiting to happen
It doesn't suprise me that they are in this mess.
Several years ago thet got new chairman, he ran an electrical utility in the Mid-West. I knew this wasn' a good fit as utilities are regulated just as airlines were before deregulation. After deregulation it's a whole new world out there. Management has to be fast on their feet.
Several years ago thet got new chairman, he ran an electrical utility in the Mid-West. I knew this wasn' a good fit as utilities are regulated just as airlines were before deregulation. After deregulation it's a whole new world out there. Management has to be fast on their feet.
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Interesting article; although my gut instinct is that after the smoke from the economic mushroom cloud dissipates DAL, along with at least AMR and NWA, will still be standing. The extent to which the courts have allowed the two real basket cases to sacrifice employee welfare through legal manoeuvring in an effort to prevent the inevitable run over by Darwin's engine is truly astonishing. Once they eventually go under, sunnier though not necessarily bright days follow for the survivors. DAL will be amongst them, although I'm not going so far at present to recommend buying any stock. Tough times ahead, but then, the rear view mirror shows the same thing. Perhaps we're all doomed.
Lions and Tigers and Bears - Oh my!
Lions and Tigers and Bears - Oh my!
