This board reminds me of the last weeks on the UAL TWA and PAA boards, just prior to BANKRUPTCY!! All SO positive that the "government" would never let them go under, so sure that the union was destroying the airline OR management was the villan. GONE dudes, along with the Clipper Club life membership. Kind of the funny & poetic justice that the two predatory airlines that ate PanAm's beating heart even before death are now dying of indigestion. DELTA and UAL will be as fallen flags as are the banners of TWA, Pan American World, Eastern .... on a plane cemetery out in Arizona.
>>>>>>>>>>>>> I think DAL becomes the next AMR and AMR needed to get multiple unions on board and had a payment deadline >>>>>>>>>>>>>>>>>>>
The basic question is whether DAL will be another AMR or a UAL. Our view is that DAL is actually in much better position than AMR was. The one constant regarding the legacy airlines is that no significant wage concessions can be obtained form the unions without a VERY credible threat of bankruptcy.
As was the case with AMR, this produces a significant buying opportunity in the securities of the airline involved. AMR is the prime example. In 2003 AMR management prepared papers to file chapter 11 and demonstrated a credible threat to file. The securities of the airline reached all-time lows as the various unions voted on accepting or rejecting the concessionary contracts. Ultimately after a controversial narrow revote by the flight attendants union, the concessions were achieved and the securities soared.
We think DAL will have a much easier time achieving concessions. Only the pilots are unionized. In all of the other legacy carrier situations, the pilots were the �easiest� to obtain concessions from. This is because the pilots have by far the most to lose in a bankruptcy situation.
The UAL pension situation illustrates that bankruptcy probably will result in the terminating of the defined-benefit pension plans, as happened at US Air. The PBGC insures pensions in such events, typically up to limits of about $35,000. Thus, the lower paid union groups at an airline are not risking much, if any, of their accrued pension benefits in bankruptcy. However, the higher paid pilots stand to lose most of their pension benefits in bankruptcy.
The pilots also have very little prospects of alternative employment and are aware that in bankruptcy DAL would swiftly move to void their contracts. As �at-will� employees the pilots would earn no more than the wages now paid by the low-cost airlines.
If the contract between the pilots and DAL were to be voided, DAL would become a very attractive target for airline �vultures� like Texas Pacific. With no union contracts in force, DAL could be converted into a low-cost airline very quickly. The debt securities of DAL would be the new equity in such an airline or could even be made whole in a section 1114 �cure� exit. We view them attractive at current levels, but are aware that there will be considerable volatility as the drama of the bankruptcy threat is played out.