Airline Analyst Philip Baggaley's Outlook For Delta Airlines
Tuesday, April 04, 2006
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SUSIE GHARIB: Delta Airline`s pilots have overwhelmingly voted to authorize a strike if the carrier is allowed to slash their wages and benefits. The pilots union said today almost 95 percent of its members voted in favor of OKing a walkout. The bankrupt carrier has asked an arbitration panel to let it dump its existing contract with the pilots, saying it needs $300 million in pay cuts to survive. That panel is scheduled to rule on April 15. Joining us now to talk more about the outlook for Delta, Philip Baggaley. He`s senior airline credit analyst with Standard & Poor`s. Hi, Phil, how are you doing?
PHILIP BAGGALEY, SR. AIRLINE CREDIT ANALYST, S&P: Good evening, good.
GHARIB: So how serious is this latest development with Delta or is this something that you were expecting?
BAGGALEY: Well, I think it was an expected outcome. However, it does raise the risk of a strike. The most likely outcome still is a negotiated compromise. Airline labor talks often go up to the last moment.
GHARIB: If the pilots and Delta cannot work out a negotiated compromise, I`ve been talking to some other airline analysts and they`re saying it`s a good possibility that Delta could go out of business and would have to liquidate. How real is that?
BAGGALEY: That`s a very real threat. Strikes are devastating to an airline. They have very high fixed costs and passengers began demanding refunds. So if the pilots actually do go out on a strike, first of all the airline would be able to operate only very few flights with some management pilots and they`d lose large amounts of money very quickly. So anything more than a very brief walkout and Delta could well shut down and liquidate.
GHARIB: As we reported just a moment ago, Delta needs to cancel these contracts as a way to save $300 million to survive. If they can`t come to a compromise with the pilots, what other options does Delta management have so that they can come up with a restructuring plan?
BAGGALEY: Well, really, there are no other options. They have to come to sort of new agreement with the pilots. I think both sides would prefer that it be a negotiated compromise and the arbitrators have made it very clear that they also want to see a compromise. But they do have to change the contracts. Delta has to get its costs down.
GHARIB: So what`s your prediction on what`s going to happen to Delta? Can it emerge from bankruptcy? Can it become a viable airline again?
BAGGALEY: I think it`s likely that Delta will eventually emerge. They`re not as far along as Northwest is in its bankruptcy but they still have a substantial route system and they`ll probably be a long-term survivor.
GHARIB: Given the precarious situation that Delta is in right now, what are the chances that Delta`s creditors, bankers, other lenders, you know, might shut down the airline?
BAGGALEY: Well, Delta has arranged a large bankruptcy financing (INAUDIBLE) and there are covenants in that which could be affected by a strike. However, I don`t think the lenders would want to see Delta shut down either if they thought there was a chance of working it out. They`d probably give Delta some room to come to an accommodation.
GHARIB: I know you`re a financial analyst, but for all the people who are watching this program right now, wondering should I fly Delta, what can you say to consumers who may be flying with Delta or thinking of buying tickets. Is it a good idea?
BAGGALEY: Well, we still have a little less than two weeks to go and actually the talks could continue past April 15, so I think at this point I`d say stay tuned.
GHARIB: All right. That`s a safe answer. Thank you very much, Phil, for coming on the program. Appreciate it.
BAGGALEY: My pleasure.
GHARIB: We`ve been speaking with Phil Baggaley, senior airline credit analyst with Standard & Poor`s.
