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Old 12-01-2011, 04:21 PM   #21  
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Sailing,

You went way far out on a limb with your claim that SWA's hedges caused Delta's bankruptcy.

First of all, lets call these legal maneuvers what they are ... strategic default. American has 4 billion in cash (nearly the liquidity of Delta at the end of the third quarter). American likely will not need DIP financing, they have the cash to get through this. Unlike our neighbors, these corporations can screw the bank and keep their house (and bonuses).

There is an awful lot of evidence to show Delta's bankruptcy was in the planning stages as far back as pre-9/11. Look at Leo Mullin's resume for starters. He was a banker. Hollis Harris was an airline guy and was passed over. Mr. Harris went on to make other carriers relatively successful and they had a lot less going into his tenure than Delta had going for it. McKinsey was publishing that they were helping United as far back as 2000 with the planning it had developed at Delta Air Lines. As history shows, United filed in 2002 and Delta's roadmap, as well as Northwest's was nearly as similar as two different crews reading the same checklist.

At 28 to 37 million each, Delta's RJ fleet required the commitment of more than 22 Billion. Add to that the cost of the corporate acquisitions and repairs (4 to 5 Billion) and Delta was into the RJ experiment for about American's total debt load ... and you're stating that had nothing to do with the "bankruptcy."

SWA in many ways is not a direct competitor for Delta. Sure they used their hedges in a competitive manner, but Delta would have gone bankrupt without SWA's influence. Heck, I think they might go there again as a competitive response if American's trip to the Courthouse makes them too tough a competitor.

... or you can believe as Jamie Baker says, that Delta's stock is going to $17.50. His Company has some bonds they would like to sell you.

Major airlines have mostly gone "bankrupt" because they don't keep their promises to bond holders, share holders, or employees. They go "bankrupt" because the Courts let them.
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Old 12-01-2011, 04:24 PM   #22  
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Had SW not been hedged for years at under 40 a barrel the industry would look quite different today and average wages might be much higher.
Wouldn't it be more appropriate to blame the bungled mismanagement at other airlines for the crushing pressure to keep labor costs down (both inside and outside of bankruptcy)?

I'd say if the others had more astute management and foresight they'd have hedged as well, would have been in a better overall financial position, and then "average wages might be much higher."
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Old 12-01-2011, 08:17 PM   #23  
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Sailing you are right on many of your points. It wasn't until 2007 when SWA started raising fares that the industry rebounded. As to why every legacy carrier has hit bk one must conclude that the aviation system itself is a failure. Our industry faces more taxes, fees and burdens that surpass any other industry in our country and we operate in outdated inefficient ATC system that has yet updated. With Congress threatening to prohibit airlines from charging bag fees (SWA lobby for you) and no realistic energy policy in place that allows speculators to make millions on virtual oil while our costs go through the roof.
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Old 12-01-2011, 09:54 PM   #24  
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Bar, You have your timelines and people screwed up. Hollis Harris was passed over as CEO of Delta in 1989. Ron Allen was picked instead of Hollis. He went on to start the turnaround at CAL shortly after followed by becoming CEO of Air Canada. He was long gone from Delta in 97 when Mullins was hired.
Delta did everything it could to stay out of Chapter 11. The experts if you want to quote them said Delta waited way to long to file. In fact the airline almost had to go chapter 7 because they let their cash position dwindle down to the point where there was a real chance of not being able to make payroll or purchase fuel. The last thing the management team wanted was to file. They all held incredible numbers of stock options that were rendered worthless and in the end most were fired. Why would the board fire them if they were doing what they hired them to do. Leo was hired in the 97 when Delta was enjoying record profits and the future looked bright. To say he was hired in 97 expressly to lead Delta into Chapter 11 8 years later is a big stretch.
As far as SW airlines when they were hedged they were able to set and control domestic pricing in the US. They were losing money on a operational basis almost every quarter and making it back in the hedges. They could have raised fares and made a lot more money but they went all in so to speak to try and drive UAL out of business. It only failed when fuel prices collapsed. The current profits in the airline industry are because SW is no longer hedged and has had to raise prices like the rest of us to stay in the black. Any airline with more then a 15 percent market share in the domestic market can set and control the yield of all the other airlines for the domestic US. That is simply how a commodity works.
SW with the collapse of the wage structure at the legacy airlines no longer enjoys the cost advantage it once had. It can't take market share at will from other airlines. They have had to make a radical change in their business plan from internal growth only to a merger strategy to continue to expand. The hedges that were once so important to them in the end ran their cost structure way up as they were unable to demand any wage cuts from employees while still making a profit.
SWAPA is very aware of all this and that is one the reasons they have not pushed management for any substantial wage increases after the 01 time frame when they piggybacked of DAL and UAL to bump their rate to 192 and hour. 10 years later its at 212 an hour or a less then 1 percent a year increase. SWAPA does not want to be where they are in wages. They want the historical cost advantage back so they can resume their 10 percent year over year growth that produced 7 year Captains for 2 decades. Sadly with the latest from American they are not likely to see it for a long time.

Last edited by sailingfun; 12-01-2011 at 10:08 PM.
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Old 12-01-2011, 10:04 PM   #25  
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Sailing you are right on many of your points. It wasn't until 2007 when SWA started raising fares that the industry rebounded. As to why every legacy carrier has hit bk one must conclude that the aviation system itself is a failure. Our industry faces more taxes, fees and burdens that surpass any other industry in our country and we operate in outdated inefficient ATC system that has yet updated. With Congress threatening to prohibit airlines from charging bag fees (SWA lobby for you) and no realistic energy policy in place that allows speculators to make millions on virtual oil while our costs go through the roof.
SW had no choice in 07. They had to raise fares or lose money. They actually taken big losses in hedges and had to cover the loss. I think that was the year that after killing every fare increase the majors tried to float for 4 years they led the industry in increases. Instead of killing them they were leading the charge for higher fares. The entire industry did well as a result.
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