Delta Airlines emerged out of bankruptcy

[naeron]

NEW YORK (MarketWatch) -- Delta Air Lines Inc., the No. 3 U.S. domestic carrier, on Monday emerged from Chapter 11 bankruptcy protection after a 19-month restructuring.
The Atlanta-based airline said it has reworked operations to focus on international routes and was able to cut its net debt by more than $9 billion, to a projected $7.6 billion at the end of 2007.
"Through our restructuring we have successfully repaired our balance sheet, improved the customer experience, expanded our international route system and built a platform for future success," Chief Executive Gerald Grinstein said in a statement.
Delta entered Chapter 11 on Sept. 14, 2005, the same day as Northwest Airlines Corp. (NWACQ NWACQ0.29, -0.04, -12.1% ) , amid high fuel prices and the burdens of high labor and pension expenses. Delta slashed its labor and pension costs while under court protection. It said the restructuring has resulted in annual cost savings of $3 billion.
Delta (DALRQ :Delta Air Lines, Inc is the No. 3 carrier of domestic passengers in the U.S., behind Southwest Airlines Co. (LUV :Southwest Airlines Co.
and American Airlines (AMR :AMR Corporation News , chart , profile , more
and is the No. 4 U.S. carrier for international passengers, behind American, United Airlines (UAUA :UAUA33.90, -0.10, -0.3% ) and Continental Airlines Inc. (CAL : Continental Airlines Inc
CAL37.25, +1.00, +2.8% ) .

Delta earlier this year fought off a hostile $9.75 billion bid from U.S. Airways Group (LCC : US Airways Group Inc


As part of Monday's move, existing shares of Delta stock will be cancelled and current shareholders will not receive any compensation for their positions, the airline said. Shares of the new stock will start trading on the New York Stock Exchange on Thursday under the DAL symbol and be issued to creditors and some employees. A new logo will appear on more than 900 Delta and Delta Connection aircraft by the end of the year.

Delta's reorganization plan will give unsecured creditors a percentage of the value of their allowed claims as shares of new Delta stock. Delta employees will get a lump-sum cash payment from the airline, based on a percentage of their salary, and will receive an equity stake in the reorganized company.
As part of its exit from Chapter 11, Delta will also close on a $2.5 billion loan that will be used to repay another loan that helped fund the airline's operations while in bankruptcy.
More than 95% of the airline's creditors voted in favor of its restructuring plan. In the first quarter, Delta posted operating profit of $155 million. It was the fourth consecutive quarter that the airline posted an operating profit.
Delta forecast a pre-tax income of $816 million in 2007, excluding reorganization items, rising to $1.9 billion by 2010. The airline recorded a pre-tax loss of $452 million in 2006 and $2.1 billion in 2005.
Delta "has substantially improved its operations" and its 2007 earnings "should rank it in the middle of the pack among the profitable legacy airlines" American, Continental, U.S. Airways and United, according to a report from Prudential analyst Bob McAdoo. Delta's net debt levels should also about match those of United and U.S. Airways, McAdoo added.
With 400 million new Delta shares hitting the market, Prudential forecasts a share price near $15, below the current $23 level of shares, which trade on a when-issued basis.
"Based on the [UAL Corp.] experience, we expect that new Delta will trade down to the $13 to $15 level in the first weeks after issuance," according to McAdoo.

Aude Lagorce is a reporter for MarketWatch in London.
Padraic Cassidy is a reporter for MarketWatch in New York.

 

[naeron]

"As part of Monday's move, existing shares of Delta stock will be cancelled and current shareholders will not receive any compensation for their positions, the airline said. Shares of the new stock will start trading on the New York Stock Exchange on Thursday under the DAL symbol and be issued to creditors and some employees. A new logo will appear on more than 900 Delta and Delta Connection aircraft by the end of the year. "

This is what I did not understand why are they not recognizing the existing stock.

 

[naeron]

A timeline of key events at Delta Air Lines

The Associated Press

Key dates in Delta Air Lines' history:
-June 17, 1929: Delta starts its first passenger flights over a route from Dallas to Jackson, Miss., via Shreveport and Monroe, La.
-March 1, 1941: Delta moves headquarters from Monroe, La., to Atlanta.
-April 17, 1957: Delta stock begins trading on the New York Stock Exchange.
-Aug. 1, 1972: Northeast Airlines merges with Delta. Delta becomes a major carrier in New York and Boston, with direct routes from New York and New England to Florida.
-1982: After Delta suffers financial losses, employees raise $30 million in payroll deductions to purchase the first Boeing 767, named "The Spirit of Delta."
-April 1, 1987: Delta merges with Western Airlines; becomes the fourth largest U.S. carrier and fifth largest in the world. First trans-Pacific service begins with flights to Tokyo. Ronald W. Allen becomes Chairman and CEO.
-Nov. 1, 1991: Delta purchases substantially all of Pan Am's trans-Atlantic routes and the Pan Am Shuttle.
-2001-2003: Delta eliminates roughly 16,000 jobs, or 21 percent of its work force compared to pre-Sept. 11 levels, by mid-2003.
-Feb. 6, 2003: Delta announces pay cuts for top executives.
-April 30, 2003: Delta proposes 22 percent pay cut for pilots and canceling of pilot pay raises due over the next year, according to union. Company later asks for 30 percent pay cut and other concessions. Pilots, meanwhile, offer a 9 percent cut and to forgo a 4.5 percent raise due in May 2004.
-May 10, 2004: Delta warns in regulatory filing that it may file for bankruptcy if it doesn't get deep concessions from pilots.
-Sept. 8, 2004: Delta says it will cut up to 7,000 more jobs over 18-month period and shed its Dallas-Fort Worth hub.
-Oct. 27, 2004: Delta, pilots reach tentative agreement on pay cuts and other concessions that will save airline $1 billion a year. Delta also gets $1.1 billion in fresh financing from creditors.
-Jan. 20, 2005: Delta blames persistently high fuel prices for a $2.2 billion fourth-quarter loss.
-July 26, 2005: Delta CEO says in memo that current transformation plan, which includes cutting annual costs by $5 billion by the end of 2006, is not enough to save the struggling carrier.
-Sept. 14, 2005: Delta files for bankruptcy.
-April 14, 2006: Delta pilots reach tentative agreement with management on a second round of pay and benefit cuts, averting a threatened strike by the pilots.
-Sept. 2, 2006: Effective date for termination of Delta pilots' defined benefit pension plan.
-Jan. 31, 2007: US Airways drops hostile takeover bid for Delta after Delta's unsecured creditors endorse Delta's standalone reorganization plan.
-April 30, 2007: Delta emerges from bankruptcy.
Source: Delta officials, SEC filings, public records, AP archives.

 

[Christian]

This is what I did not understand why are they not recognizing the existing stock.

My guess is that they have the freedom to do this because of their bankrupt status. The airline industry in the US is really hurting - I could not even get a blanket on my way to Las Vegas, and they wanted to charge me for the in-flight food.

If this is the case, they're certainly not going to pay out existing shareholders as an act of public relations if they're not forced to.

Can anyone verify this?

 

[naeron]

In my opinion why the shareholders suffer. They have already suffered from the bankruptcy. This is unfair to the shareholders. I guess they should give at least something to the guys who own the stock before bankruptcy and didn sell them during the last year.

 

[Andy Nguyen]

When a company gets liquidated or goes bankrupt, it has an order of priority for creditors to be repaid, if there is anything left, then common stock holders get a portion of that for the newly formed company. This, however, is extremely rare. Usually they get nothing.

In some cases the company may emerge, but it is really quite rare for the shareholders to come along for the ride. That's because equity shareholders are quite literally the last people in line to receive something from the bankruptcy. Behind the debt holders, behind the merchant creditors, behind the trustees, behind the employees, behind the tax man, and even the preferred shareholders.

http://www.fool.com/news/foth/2002/foth020129.htm

 

[Christian]

In my opinion why the shareholders suffer. They have already suffered from the bankruptcy. This is unfair to the shareholders. I guess they should give at least something to the guys who own the stock before bankruptcy and didn sell them during the last year.

Would be nice, right? But hey, what are you still doing holding Delta stock?

 

[pardasani]

well if you notice that airline companies go to default and always come back. Lets say I bought the stock when it as less than a dollar keepin my faith in my obeservation why shouldnt i get the benefit. just a thought. may be silly ..

 

[alain]

well if you notice that airline companies go to default and always come back. Lets say I bought the stock when it as less than a dollar keepin my faith in my obeservation why shouldnt i get the benefit. just a thought. may be silly ..

Because you are not a creditor. You own a piece of the company that just doesn't exist as you bought it. The creditors own the company now. I think a lawyer should be better prepare to answer this question... just my 2 cents.

 

[woody]

Bottom line is the common stock holders are at the bottom, getting paid after everyone else. They buy stock knowing the risks.

I hope the people who had Delta stock in their 401k's are taken care of to some degree. (Delta employees)