Delta faces difficult negotiations

Delta faces difficult negotiations

Credit Suisse First Boston analyst James Higgins speculated a day after Delta Air Lines discussed its 2003 financial results that the airline's new CEO, Gerald Grinstein, may be laying the groundwork for a possible Chapter 11 bankruptcy filing.

Higgins' opinion hinges on statements Delta executives made about the carrier's current pilot cost structure. Delta reported a net loss of $327 million ($207 million excluding special items) for the fourth quarter of 2003. The company would have been at break-even for the quarter if its pilot cost structure were equal to its peers or to low-cost competitors.

According to a report by Logistics Today's sister publication Air Transport World, Higgins suggested Grinstein's announcement that the airline had begun a full strategic assessment of its business plan could be interpreted as the airline undertaking the due diligence necessary to claim it did everything possible to avoid Chapter 11, should it reach that point.

Higgins may be getting ahead of events. The threat of a Chapter 11 filing is one negotiation tactic management could use against reticent pilots. On the other hand, a strategic review is also good practice for the new CEO of a company with the kind of losses Delta had in the fourth quarter.

Morgan Stanley's William Greene agrees that the pilot cost issue is significant, but he feels pilots will recognize the severity of Delta's situation and will reach an agreement with the airline. Though he doesn't feel Delta can attain pilot cost parity with rival American Airlines, he comments that, “In the perverse logic of the airline industry, Delta's fourth quarter loss may be just the medicine needed to fix the labor cost problem.”

Of three possible scenarios, Greene sees Delta and pilots agreeing on a contract that provides savings, but less than those won by American in its contract negotiations. He gives this scenario a 70% probability.

Greene's other two scenarios include no concessions from pilots, leading Delta to continue to burn cash, creating a concern over the airline's liquidity. He gives that scenario a 20% probability. Least likely and most optimistic is that Grinstein wins significant concessions from pilots. Greene gives that a 10% probability.

Logistics Today logo
February, 2004

Feedback on this article?

© Want to use this article?
Click here for options!

Copyright© 2004 Penton Media, Inc.

TAGS: Archive
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.