Delta Cuts to Run

Desperate times call for desperate measures. In Delta's (NYSE: DAL  ) case, that's now, according to CEO Gerald Grinstein. In a memo to employees yesterday, Grinstein announced a 10% pay cut for employees other than its pilots. Employees will also share more of the costs related to health care.

Grinstein positioned the cuts as critical to avoiding a bankruptcy filing. Yet a report this morning in the online edition of USA Today quotes airline consultant Jon Ash as wondering why Delta doesn't simply declare bankruptcy now. Indeed, I wonder the same thing. Ash told the paper that the airline needs court protection to clean up its balance sheet and reduce its liabilities.

That may be the understatement of the year. Delta's most recent balance sheet as reported at Yahoo! Finance shows more than $21 billion in long-term debt and liabilities. Its quarterly interest payments equal nearly $200 million while cash on hand -- currently $2.2 billion -- continues to dwindle. No wonder published reports say Delta is spending $3 million in cash per day.

In his memo, Grinstein says that the pay cut, along with job cuts and other cost-saving measures outlined here, will add $1 billion to the $2.3 billion in savings Delta has said it will achieve by the end of the year. The company is targeting $1 billion more in concessions from its pilots, and $5 billion total in annual reductions by 2006.

Although impressive progress has been made, Delta is still $700 million short -- and that's assuming the pilots agree to givebacks. Sure, there could be some obvious fat waiting to be trimmed playing possum somewhere in Delta's business model. But $700 million worth? That's one fat possum.

So, let's just be honest, OK, Jerry? I admire your fight and your willingness to give up what appears to be $125,000 of your $500,000 salary for 2004, but the $3 billion gap you hope to close in the next two years should be traversed through a court-supervised restructuring. Please get on with it.

For more Foolish coverage of Delta and the airline industry:

  • US Airways (OTC BB: UAIRQ) could join Pan-Am and Braniff as the most recent airline to shut off its engines for good.
  • If Delta joins rapidly descendingUAL's (OTC BB: UALAQ) United and US Airways in bankruptcy, then roughly 40% of the nation's air traffic will be operated by carriers in hock.
  • If Delta doesn't address its identity crisis, it could crater any day.

If the turbulence associated with investing in airline stocks isn't for you, then Philip Durell'sMotley Fool Inside Valuemay be just what you need. Each month, Philip selects two promising stocks at attractive valuations with a substantial margin of safety. If that sounds good, you can give it a try risk-free for 30 days.

Fool contributor Tim Beyers owns none of the stocks mentioned, but he has family members who are retired from United Airlines. You can view Tim's Fool profile here.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 502088, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:32:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes