Are they factoring in an SR-111 Report backlash against the MD-11? Are they factoring in an SR-111 Report backlash against the MD-11? I would expect (as the SR Codeshare partner and MD-11 operator) that they might have also been privy to at least the currently circulating Draft Report.
Aviation Daily: Delta Posts Deep Loss, Plans To Ground Most MD-11s By 2004
By Steve Lott/Aviation Daily
16-Oct-2002 9:33 AM U.S. EDT
Delta yesterday reported a deep $326 million, third-quarter net loss, including one-time items, due to weak revenues and soaring security costs. At the same time, management warned there is little hope for a recovery until at least 2004, and it will have to cut additional employees, ground its MD-11 fleet and defer expected deliveries.
Excluding unusual items, the airline reported a $212 million net loss, slightly smaller than analysts expected. As previously announced, the airline recorded $114 million of one-time costs, mostly due to aircraft impairment charges. Third-quarter revenues rose 0.6%, and passenger unit revenues increased 1.5%, compared with last year. The airline noted comparisons with 2001 may be difficult due to the terrorist attacks and the residual effects of the Comair pilot strike.
Yields were down 2.5% to 11.57 cents, and the breakeven load factor jumped more than six percentage points to 83.3%. President Fred Reid told analysts the traffic recovery reported in the first half of the year "has clearly stalled." He added the "revenue and demand environment has remained weak" and there is no immediate turnaround expected for several quarters.
Delta management is comfortable with its current liquidity as the airline had $1.7 billion in cash and cash equivalents on hand at the end of the third quarter and had breakeven cash flow from operations. Delta also had liquidity of about $920 million available under existing credit agreements as well as unencumbered aircraft valued at about $5 billion. The airline expects to meet all debt obligations as they become due.
Chief Financial Officer Michele Burns told The DAILY the airline will be "very cautious and tough-minded" during the next year as "we have a daunting road ahead." Lehman Brothers analyst Gary Chase yesterday said Delta "has enough liquidity to weather the storm." Chase added that the airline's "strong liquidity position... helps to make the company the best positioned among its peer group to survive this downturn."
Despite soaring security-related costs and taxes, Delta's expenses were down 3.7% largely due to lower commission and maintenance costs, which dropped 47% and 16%, respectively. Unit costs fell 1.3% thanks to Delta's fuel-hedging program, which cut costs by $32 million. Delta hedged about 50% of its fuel requirements in the third quarter and has half of its needs hedged in the current quarter at an average price of $0.67 per gallon. "We continue to be creative with many of our cost initiatives," Burns said.
As part of its strategy to cut expenses and capacity, Delta early next year will start to ground its 15 MD-11 widebodies. Twelve of the aircraft will be removed from the fleet by next summer and will be replaced on international routes by 767-300ERs, which are currently flown in the domestic network. Domestic service now flown by the 767 will be operated with smaller aircraft, such as the 757, which will reduce Delta's domestic capacity by 2% after the changes are fully implemented.
The remaining three MD-11 trijets will be removed in early 2004 and will be replaced by existing 777. The decision to ground the MD-11s within two years is an aggressive acceleration of Delta's earlier plans. CEO Leo Mullin less than a month ago said he wanted to retire all MD-11s and MD-80 narrowbodies by 2010 (DAILY, Sept. 20). The oldest MD-11s in Delta's fleet were delivered in 1992. Delta will not defer any regional jet deliveries planned for its wholly owned regional subsidiaries.
In addition to rapid MD-11 retirements, Delta reported it has deferred all 29 mainline aircraft deliveries scheduled through 2004. The airline expected to take delivery of five 737-800s next year, 23 737s in 2004 and one 777 in 2004. The fleet changes will result in a $1.3 billion cut in planned capital spending during the next two years. Burns told The DAILY the airline "reached a good agreement with Boeing" on the deferments as the existing contract "allowed for certain flexibility."
Separately, Reid told analysts Delta has not been hurt by the US Airways bankruptcy filing, American's launch of an East Coast shuttle or the terrorist attack in Bali. In fact, executives noted that forward bookings in October "have picked up" and fourth-quarter loads are looking relatively stronger. The bright spots, however, were overshadowed by Mullin's confirmation that the airline will have to cut additional employees beyond the previously announced 1,500 flight attendant reductions.