Originally Posted by
Bucking Bar
We are using and retiring assets without replacing them. By definition ... liquidating those assets. The term "liquidation" was introduced to this discussion by a hedge fund manager who used the term to describe Delta's lack of capital investment in his review of our lease information included in the Company's 10K. I resisted the use of that term until re-reading the definition and deciding it fit, despite its provocative overtones.
The point being, is our "profit" real, or does it mostly reflect our lack of investment going forward?
We invested $1.5 billion in capital expenditures in 2011. We took $1.5 billion in depreciation in 2011. Sounds to me like not growing or not shrinking. Capex has nothing to do with profits as it does not show up in operating expenses, it only shows on the Cash Flow statement. There was a reason we tried to explain airline finances to pilots last year. We weren't trying to lower expectations, we wanted you to understand this stuff and be able to make reasoned and not emotional judgements.
I don't know what this hedge fund manager said, if you posted it somewhere back I missed it. Delta is now generating excellent cash flow. In 2009 they used the cash flow mainly to fund merger expenses. In 2010-12 they will use the cash flow mainly to de-lever the airline and make us more immune to external events (like tsunami, 9/11, wars, etc.) and allow the airline to thrive in good AND bad times. In 2013 and beyond they will use that cash to fund fleet renewal with 737-900's and then next-generation aircraft. This is not liquidation. This is a sound business plan that will pay enormous benefits to your future.
The airline business has been in a negative stability loop in the last 20 years. The highs went higher and the lows went lower. 2003-2005 pretty much signaled that something had to change. Instead of making the business a high risk gamble, through consolidation and better balance sheet management, Delta is de-risking our business and producing a model that can generate consistent profits, which by the way will fund contract improvements. Part of this new rationality will be the lack of the explosive growth followed by furlough models we have seen.