10/29/2004

Delta Takes One Step Away From Bankruptcy

Everyone knows the woes of Delta airlines. They have been on the brink of bankruptcy for a while now with another $651 million loss in the third quarter. Strategies to put their heads securely above water have included salary concessions from their 7,000 pilots, cutting 7,000 employees, and offering notes to investors that are collateralized by debt-free aircraft, simulators, and other equipment.

It looks that just yesterday Delta took a great step away from bankruptcy as it appears the pilots have come to an agreement with management allowing for $1 billion in concessions. While this is good news, it only skims the top of the lake of debt that Delta has incurred. Of course, Salt Lake's economy will likely benefit from the closing of Delta's Dallas hub which will expand operations in Salt Lake.

8 comments:

Rufio said...

During the last blogging block I wrote about a similar issue concerning United Airlines. It seems that many airlines are downsizing in order to stay afloat. With these rising gas prices it is going to take a lot of sacrifice on the part of the airlines in order to stay competitive. The closing of Delta's Dallas hub will defenitly give room for the Salt Lake hub to grow, but my question is, will their be a demand for the growth here in Utah? Maybe Delta has other plans to grow else, or maybe Delta doesn't plan to grow at all at this point. It will be interesting to see what Delta has in store for the future.

John West said...

Hopefully with the pilots consenting to pay cuts, Delta will be able to make enough headway to break into a positive quarter. The upcoming holiday's should help as well. Most people will travel either for Thanksgiving or Christmas, you know during that time of year when we have to be reminded of who were unfortunately related to.

Lisa said...

I was looking into the Delta financial problems and came across an article that explained why Delta came to an agreement with the pilots. Delta was given $600 million dollars from American Express under the conditions that Delta come up with an agreement with their pilots. $500 million of that money is to be a prepayment in Skymiles and the other $100 million is to be a financing loan. The $100 million loan was to be given to them when they made the $1 billion agreement with the pilots and the $500 million is broken up into two payments. Delta will still be filing bankruptcy but not as much as they had originally declared.

Bryce Larkin said...

I really hate it when companies go under, but sometimes that is what happens in a capitalistic economy. I am happy for Delta trying to stay afloat. I think that they need to change things soon so they don’t go under.

Bryce Larkin said...

As for Salt Lake this is extremely great news. If Delta puts its hub in Salt Lake City it will bring more jobs and more money in the economy.

Maudi said...

The closing of the Delta hub will allow Salt Lake City Airport to draw in new up and comming airlines. Delta is a classic example of a company that found them selves caught in the middle. They were trying to do to many things at one and not focusing on the things that really mattered. It is important if as a company to find a niche and stay in that niche otherwise you lose by becoming medioker at everything.

Maudi said...

The closing of the Delta hub will allow Salt Lake City Airport to draw in new up and comming airlines. Delta is a classic example of a company that found them selves caught in the middle. They were trying to do to many things at one and not focusing on the things that really mattered. It is important if as a company to find a niche and stay in that niche otherwise you lose by becoming medioker at everything.

Dr. Tufte said...

I think this is a stopgap measure. Delta may not go bankrupt this time, but it will eventually.

Passenger transportation just isn't an industry that is very profitable. Think about all the profitable passengers lines on ships, trains, and buses.

Part of this is a prisoners' dilemna in prices. High prices are profitable, but offering low prices when your competitors don't makes a lot more of money. Thus, they all have incentive to offer low prices, meaning that they can't make those profits by grabbing market share. Passengers have very elastic demands, which means this situation is not likely to change.

This is probably an example of an industry that needs to be subsidized by the government. Regulating them less would serve the same purpose.