Listening to Delta Air Lines’ CEO Jerry Grinstein this morning, one could not come away from his comments with any other impression but one. The man does not want to be the one saddled with “Sold Delta Down the River” on his tombstone.
Not that we didn’t already know this. After all it was Grinstein and company who, arguably, waited too long to take Delta into bankruptcy in the first place.
In both cases I think one can throw away the spreadsheets and the “what is the rational thing to do” arguments.
No, as I wrote two weeks ago in PBB, this situation with Delta has become far too much about emotion and ego. And nowhere was that more evident than in the comments of Delta’s CEO this morning.
Case in point? “US Airways is the worst possible merger partner.”
Given the current airline financial environment, I don’t think I would be saying things like this publicly. Those words could come back to haunt him.
One thing is for sure. I don’t think Doug Parker is on Jerry’s Christmas card list.
This morning Delta revealed its restructuring plan for its escape from the jaws of bankruptcy. The airline filed a five-year business strategy with the U.S. Bankruptcy Court in New York, 15 months after seeking Chapter 11 protection.
In its filing, Delta said it will leave bankruptcy in the first half of next year, and forecast net income of about $450 million in 2007 and $1.2 billion in 2010.
Delta said its plan would let unsecured creditors recover 63% to 80% of their claims, and that Blackstone Group, a financial adviser, estimates the airline’s value at $9.4 billion to $12 billion.
Delta also estimated that its operating margin would move from a negative 6.9% this year to 2.4% in 2007 and 10.5% by 2010. CASM will fall to 6.73 cents in 2007, down 20% from 2004, CFO Edward Bastian said on this morning’s call.
So where does all this put us? Delta has gone public with its restructuring plan, which looks, not surprisingly, a little optimistic or aggressive (take your pick) in terms of what it expects to do on the revenue front in the next year or so. On the other side of the fence, I think the airline is also underestimating the potential effect of a potential merger.
Nothing we wouldn’t expect them to do.
But contrary to what some people think — even though this plan has now been filed, and even though the Jerry Grinstein-led board of directors has said “no” to a potential deal with US Airways — the real power here still lies with the airline’s creditors committee.
I will be very surprised if the committee does not vote this week to allow US Airways to proceed with the necessary due diligence it has to do in order to firm up its bid for Delta.
Then again, now that Delta has shown its hand with its restructuring plan, this could also open the door to other airlines who might be thinking about making a bid.
Bottomline — we’re not done here yet. Not by a long shot.