iaflyer

And if that was the case, why isn't the profitable darling of the industry, Southwest doing it? Oh, because in the end, you still have to MAKE MONEY and moving assets around the balance sheet isn't making money.

Attracting customers who pay more than it costs for you to produce the product is how you make money.

acl65pilot

Gloopy;
They can get better rates, just ask the banks. They have for about the last ten years. It is also bigger than that. It is about keeping DAL's debt below 10 billion once we get there. By having someone else hold the notes, DAL does not have to realize the debt as debt, but as a operational expense of a third party contntract. Structuring these with existing airlines and not a traditional finance companies would make the result on DAL's balance sheet hit differently.

DAL would negotiate the price, just like we did with most of the RJ's that are now flying. We then sold them at the point of purchase to these carriers for a slight mark up. DAL's weight would be behind any deal, do not think otherwise. It is about who holds the debt. We are not talking leases, but notes for these jets. Financing will be in place not a lease. DAL paying these guys up to a quarter of a point over their rates is even a better deal that DAL could get for these jets, and as I said that is part one. Part two is DAL even though they are paying the fees does not have to account for the hit to their credit rating, nor pay higher debt service on the debt they choose to carry. All of that equates in to hundreds of millions if not billions in savings over the life of a fleet of airplanes. Look at it from a corporate point of view not a airplane to airplane pov. DAL does this stuff in the big picture, and airplanes are something they can get someone else to buy.

The advantages are there. Look at DCI. We pay all of those leases though service payments in the CPA's, own about 15% of the jets, and almost all of that is moved off of DAL's books as real debt. It becomes a operational payment. Leases are financial obligations, and a set up with a regional partner would, imo be legally different enough to do this. I would not even be surprised if they own the jets, and DAL operates them off of their (separate) certificate with our pilots. It makes the separation a little more clear wrt to financial reporting. Refitting a fleet is big money, and DAL will do anything they can to keep their debt that they carry to this 30-40% mark. Having others front the financial risk and obligation and then operate them though an long term agreement has been tested with DCI for the last 15 years.

We look at this stuff in pilot terms, and what we have lost, DAL looks at it as a way to save money. We need to start seeing it for what it is, and return to the idea that DAL pilots fly DAL/skyteam flights no matter what certificate they fly under.( Think RJET Holdings and one contract, DCI and whatever this deal would be would be under DAL the airline or the holding company. They can structure it however they wish, and we need to ensure we are at the controls.

To answer the last, it is good for airlines to have some debt. About 30-40% leveraged is the sweet spot. DAL is shooting for ten billion which makes me think we will be a 38 billion dollar a year company by the mid 20-teens.

acl65pilot

The difference is that SWA has never been over leveraged. They had to work to get to 35% debt. It reduces ones chances of being bought out and that was their motivation.

In DAL's case we are at a point where, given where the corporation was financially, they had to move debt off the balance sheet. We were so far over leveraged, that we went in to CH11. After the merger we were still in the ball park of 65-70% leveraged, and that is just to darn high. The banks have probably told DAL that they get no more financing until they get to the sweet spot I discussed. Once they are there, they know that they will be held to it. DAL has a huge Domestic route network that needs new jets all over the place. DAL does not want to have all of that hit their balance sheet. The debt service and subsequent change to their credit rating would take this company with great financial potential and probably put them in the red. It is the significant difference between SWA and DAL. You could say that the mistakes in the 90's are the reason we are still here today. Our ability to maintain our leverage point and the ability to renew our fleet to maintain our network is key.

I like you want DAL just to buy the jets and to do away with the financial mastery, but I fly them and they finance them. They see the benefit, and I see risk and benefits from a solvency, autonomy and employee point of view.

johnso29

Guys, these regionals are running out of ways to make money. The days of FFD contracts are dying, and management knows scope isn't going anywhere. Therefore, if these regionals want any hope of survival they have to think of new ways. Hence the regional mergers and ordering larger airplanes. I really think ACL is on to something. These regionals know their gravy train is drying up, & if they become a leasing company they have found a new survival method.

acl65pilot

They reality is that many know about this, but it has not been widely discussed. The first FFD/CPA's were guaranteeing profits in the range 10-14% range. That was what the majors were making at that time. As we move to the present day CPA's they are very restrictive, and do not favor the third part operation. Risk, financial obligation, and reward are more favored to the mainline company.

Regional super execs like Jerry Atkin and Brian Bedford know that they have great credit ratings, money in the bank, and airlines that, though willing to give up market share, really do not want to give up the scope and reach of their networks. They can move to their next chapters and not have to worry about competing with them, but working with them. They will be able to sit back and collect a quarter point on the financing, and make the money they have without all of the risk. They know they will not be able to staff their airlines in five years, and now is the correct time to put in place this exit strategy.

We as pilots and the longest term investors in our airlines, need to get this right. Finance them how you wish, make the company profitable and sustainable, but understand that we will fly those jets. It really is that simple and has the potential to have both side "win."

With regard to code shares, we just need more of a say in them, and those JV's can be really good if done correctly. DAL is quickly maturing the world route network with all of these agreements, and there will be little room for easy organic growth. Growth that is defined in a JV is really where we are heading. The next step after that is Transnational airlines. (AF-DAL-KLM-KAL, V Blue-.....) The goal until we get to that point is to make sure there is incentive for the JV companies to use the US corporation and its employees (us) to not just fly the majority of the block time, but to fly larger metal that we are seeing in the AF JV.

It all can be done, and done constructively, but we need to make our stopping points known to our leadership and in turn to our corporation and these JV members. We must look five to ten moves down the chess board.

gloopy

Then why didn't we just do it with our 100 737 order? Whatever, there is a much more important concern to all this:

How can we guarantee we will never face the threat of a seniority dispute/arbitration/landgrab by engaging in this financial tomfoolery? RAH has 100% holding company scope. 100%. Holding company. How do we guarantee that won't effect us when their holding company holds planes our pilots are flying (and their pilots are not flying)?

Do we trust ALPA's lawyers to custom craft some nebulous and unprecedented multi-tier language to save us? Really? Language strong enough to stand against the separate certificate tricks of RAH? The same lawyers who dropped the ball with the F9 issue by failing to see such potential (even though RAH pilot's lawyers accounted for it!).

Tricking the industry into thinking we are debt free will only last for so long until someone "prices in" what we are doing by accounting for our "real" debt there is no way this will be a long term fix. If it was, every airline would have been doing it for 100% of their planes all along. But never mind that for a moment. How are we going to fly another airline's planes in a holding company that has 100% holding company scope?

Will we as a pilot group have to sign off on this via some "technical" section one "relief"? Or can management just do it tomorrow?

acl65pilot

They could have, but those are also jets that DAL wants own in the long term. That is debt they are willing to take. It may also have something to do with our 787 delays, but that is just a guess. I also suspect that there is a lot to that deal that is not yet public.

With a new aircraft that DAL may not want to fly for more than ten to 15 years it makes sense to not hold the debt from a corporate standpoint

Good question. I am not so worried about RJET and their C-Series orders. Places like SKW, TSH do no have that language, and even if DAL did a deal with a company that did, we own the scope of those jets. If we did not get what we wanted, which would be DAL with first right of refusal on those airplanes, and us with rights to those seats for 25+ years, they would not be flying in DAL colors. I can bet that much.

Also, in the previous post I talked about the possibility of a separate certificate to operate these jets. They could also do it with a leasing corporation and leave the airline(s) out of it completely.


They had better, because they know that it would be for the survival of ALPA. Furthermore, we hold the scope limits and like I said, they will not fly in DAL colors unless we get everything we want.

Like I said, many do not, they do not bind their holding companies. I see those C-Series at RJET as replacements for the 318, not to fly here.

Scope is about job protections, and the goal is to make sure we fly those jets. DAL can and will finance them however they want. Having them flown off the certificate on another certificate is one of many possible scenarios. I know that this pilot group will not allow the jobs to be outsourced.

To answer the question, DAL can try to have RJET own the jets, but like I said we own the scope, and if they want them to fly in DAL colors they would end up in a position where we hold all of the cards. For this reason I see Pinnacle, TSH, and SKW holdings as the likely companies that DAL would use. They would not want to enter in to an agreement with RJET and then have to eat the order.

Of course buying used jets like the 717 allows all of the debt to stay in house. I am referring to a 1/2 generation jump which does not have a typical shelf life of an airliner.

sailingfun

Southwest did just announce a cut in domestic flying for the next two years. They are however going to increase Airtrans international flying.

Boomer

Or sell Comair to WalMart for a dollar, dump the employees, and a day later put the new jets on the Comair/WalMart certificate.

gloopy

That's what I was wondering. If it could be done via that method, then why even involve the ACMI "air groups" at all? Why would any existing virtual airline have to be involved when a straight up leasing corporation could just do it? To me the risk of a seniority land grab/arbitration/McCaskill Bond situation and/or a good old fashioned DFR suit would be a nuclear price to pay just for some temporary paper advantage accounting trick.

Also, how would it be structured? If it wasn't on the DALA certificate, would we turn into a Mesa/RAH where we (our seniority list) technically work for multiple airlines? What about the other work groups? Our pilots with RAH FA's? Mesa mechanics? SKYW dispatchers?

What if it was SKYW to avoid the RAH scope (btw how funny would that be...avoiding RAH because of THEIR scope!! LOL OMG!!! I want a mandatory oil painting of that meeting!) but SKYW eventually merged with ASA/XJ and voted in ALPA for all. Now we are flying planes on their certificate and they never agreed? Not claiming I know how that would be settled, but can we really risk that just to shuffle debt around?

I'm just worried that there isn't enough contract language in the world that could be written to account for all the potential unintended consequences of something as convoluted as this could end up being. The real risk to our pilots in an virtual airline version of this seems to far outweigh any potential paper gain the accountants might enjoy for a couple quarters before every analcyst and their brokerage realize what's being pulled.

Speaking of the 787 compensation, I wonder if we spent it all on a phenomenal 737 deal or if some of that involved some 717's, or if we're saving it for something else, like 787-900's in 2020? Is something like that public knowledge or is it secret til it happens?