Delta, Northwest Declare bankruptcy

[kapkomet]

Wow. The nation's second, third and fourth largest airlines are now in Chapter 11 bankruptcy protection.

 

Add ATA and USAirways, you have quite a large chunk of the industry in bankruptcy protection now.

 

I'll tell you from personal experience it's a b**** to get out of bankruptcy as an airline. We did it where I used to work, and it's one of the few true "success stories" of an airline making it out of chapter 11.

 

I worked with many high profile industry analysts during the bankruptcy, and we knew then that this day would come. I also assisted in completing a large part of the "go-forward plan" out of bankruptcy, and in studying the airline industry in depth, there's a lot more problems then high fuel prices, although that's a large part of what they'll blame it on.

 

Should be an interesting few months as we watch the airlines go through their processes.

[Soxy]

So, uh, what does that mean for Northwest?

[Rex Kickass]

Nothing.

At least right now.

 

It's smart for them to do it NOW, before the bankruptcy laws change.

[kapkomet]

Nothing.

At least right now.

 

It's smart for them to do it NOW, before the bankruptcy laws change.

The bankruptcy laws are not changing for corporations, at least not drastically. INDIVIDUAL bamkruptcy is changing drastically.

[kapkomet]

So, uh, what does that mean for Northwest?

They will continue to operate in what's called a "debtor in possession" status... meaning, their creditors "own" the airline while it's in bankruptcy. The hardest part about going into bankruptcy is obtaining debtor in possession funding from banks.

 

winodj is partially right - and to flyers, it's business as normal, at least in the short term.

 

A word of advice, use your miles, and quickly. MOST OF THE TIME, they won't touch the miles programs, but do realize that this is a liability to the company, and they can cut the frequent flier miles right out and that's that.

Edited September 15, 2005 by kapkomet

[Balta1701]

With such a high percentage of the airline industry in bankruptcy right now, it should be plainly obvious that there is something seriously wrong structurally with the business models being run by these companies. This is an overcrowded marketplace being hammered by a number of issues (fuel prices, terrorism), and right now it looks like there just isn't space for the airlines which aren't being very well run.

 

Pretty soon, a couple of these companies are going to need to disappear.

[KipWellsFan]

With such a high percentage of the airline industry in bankruptcy right now, it should be plainly obvious that there is something seriously wrong structurally with the business models being run by these companies.  This is an overcrowded marketplace being hammered by a number of issues (fuel prices, terrorism), and right now it looks like there just isn't space for the airlines which aren't being very well run.

 

Pretty soon, a couple of these companies are going to need to disappear.

 

Canadian airlines have had the exact same struggles.

[kapkomet]

I should bust out my industry report.

 

I think I said this four years ago (BEFORE 9/11). But then again, writing that wasn't rocket science.

 

Putting together solutions was though. It's one of the reasons we got out of bankruptcy.

[Mplssoxfan]

The bankruptcy laws are not changing for corporations, at least not drastically.  INDIVIDUAL bamkruptcy is changing drastically.

 

As I understand it, after Oct. 17 (when the new laws go into effect), the bankruptcy trustees can force executives and officers to take pay cuts. So that's a fairly large incentive to declare now.

 

Also, I think Northwest had some large debt and pension payments due this week.

[Rex Kickass]

Southwest is mostly not in the same boats because they get hedge contracts on fuel. Meaning that they're paying about a third less than most airlines at the moment. Or so I've heard.

[NUKE_CLEVELAND]

Southwest is mostly not in the same boats because they get hedge contracts on fuel. Meaning that they're paying about a third less than most airlines at the moment. Or so I've heard.

 

 

You're totally right about that. That and their more efficient business model are whats keeping them and other low-cost carriers like Jet Blue profitable.

[kapkomet]

As I understand it, after Oct. 17 (when the new laws go into effect), the bankruptcy trustees can force executives and officers to take pay cuts.  So that's a fairly large incentive to declare now. 

 

Also, I think Northwest had some large debt and pension payments due this week.

It does, but most corporate officers of a company in bankruptcy take pay cuts anyway. That's nothing new. The law now forces it, but like I said, it happens anyway.

 

The timing of this was more aligned to when large debt payments were due, and they were only a day or two away from defaulting.

[southsider2k5]

Southwest is mostly not in the same boats because they get hedge contracts on fuel. Meaning that they're paying about a third less than most airlines at the moment. Or so I've heard.

 

They were smart enough to hedge their fuel costs in the long term markets is true. That has been a big boost to their bottom line, no doubt, but their business model in general is what is blowing other companies out of the water. For one thing they only fly one model of plane, making all parts and planes completely interchangable with one another. I am sure Kap can give you more details, but the way that they do business is nothing like the rest of the airlines.

 

To be honest, I am fully expecting at least one or two of the top 10 airlines to end up at a liquidation auction before all is said and done. The way that they do business is completely unsustainable, and their creditors will soon realize that.

[Soxy]

Got this from the northwest. Damn right you're honoring my frequent flier miles!!!!!

 

 

Dear Soxy,

 

As you may already have heard in media reports, Northwest Airlines® has voluntarily filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy process will enable Northwest to continue its transformation into a new-era carrier in keeping with the permanent changes that have affected the airline industry, such as rising labor costs and a doubling of fuel prices over the past two years.

 

Because we value your business and proven loyalty, I am writing to assure you that there will be no impact on the WorldPerks® program as a result of the filing. Frequent flyer mileage accrual, redemption, and Elite benefits will remain unchanged. Members will continue to earn and redeem miles according to the current WorldPerks program guidelines.

 

The bankruptcy filing will not impact Northwest’s day-to-day business operations. We remain committed to serving customers, honoring tickets, flying a competitive schedule safely and reliably, maintaining our WorldClubs® lounge program, and all other programs and services.

 

All bookings will be honored, and ticketing policies remain unchanged. Our existing marketing relationships with other airlines remain in place.

 

The decision to file for bankruptcy protection is not related to the current strike by members of the Aircraft Mechanics Fraternal Association (AMFA). Our operation continues to run well and we have experienced no adverse impact on our operational performance as a result of the work stoppage.

 

Customers can continue to book travel on Northwest Airlines with confidence. Although bankruptcy is never a first choice option, it does provide the most prudent means for a restructuring that will ensure the transformation of Northwest into a new-era carrier that is able to compete in the near term and well into the future.

 

Thank you for your continued support of Northwest Airlines. For more information about Northwest’s transformation, please visit nwa.com®.

 

We look forward to continuing to earn your business by providing the outstanding service you deserve.

 

Sincerely,

 

 

Doug Steenland

President and CEO

Northwest Airlines, Inc.

[southsider2k5]

If the bankruptcy court ie their creditors tell them to lose the frequent flyer miles, they won't have any choice. They are writing checks their asses might not be able to cash.

[Soxy]

If the bankruptcy court ie their creditors tell them to lose the frequent flyer miles, they won't have any choice.  They are writing checks their asses might not be able to cash.

I would seriously cry if they didn't honor my miles.

[southsider2k5]

I would seriously cry if they didn't honor my miles.

 

The thing that sucks is, in the grand scheme of things debts owed to regular people are all of the down at the bottom of the list of who gets paid off. I imagine they would make a case to keep the frequent flier miles as a customer good will thing, but NWA has no authority to say that those WILL be there. That is up to the bankruptcy courts now.

 

The best indicator would be did UAL have to give up their program as they have gone through bankruptcy? Anyone know?

[Soxy]

The best indicator would be did UAL have to give up their program as they have gone through bankruptcy?  Anyone know?

Is that United? I know my roommate still has her frequent flier miles with them--and they honor her credit card miles too. . .

[southsider2k5]

Is that United? I know my roommate still has her frequent flier miles with them--and they honor her credit card miles too. . .

 

Yeah that is United. You should be all right then.

[Soxy]

Yeah that is United.  You should be all right then.

Hurray! This day keeps getting better.

[kapkomet]

IF they get rid of miles, that's about the last thing they'd do, because the "badwill" on a move like that would be astronomical. My point was it COULD happen, I've seen it in a couple of other deals. Most of the time though, they won't do that.

 

United did keep their program.

 

And Northwest probably will too.

 

I'm just saying that it COULD happen. It's like a 5% chance that they get rid of it.

[Texsox]

Out of necessity a few years ago, I started flying SW, They received about 20% of my flights and caused me about 2% of my flying grief. The attitude of their employees is heads and shoulders above Continental and AA, my other two choices.

 

Tip on SW. My favorite seat is row 2, window. I never, ever, want a window seat on a regular airplane, except for that one. The first row has two seats facing backwards, row two is three seats facing forward. There is a nice ledge that the window seat occupant can stretch out and rest.

[Chisoxfn]

They will continue to operate in what's called a "debtor in possession" status... meaning, their creditors "own" the airline while it's in bankruptcy.  The hardest part about going into bankruptcy is obtaining debtor in possession funding from banks.

 

winodj is partially right - and to flyers, it's business as normal, at least in the short term.

 

A word of advice, use your miles, and quickly.  MOST OF THE TIME, they won't touch the miles programs, but do realize that this is a liability to the company, and they can cut the frequent flier miles right out and that's that.

ROFL

 

Went to the local pool last night with my buddies and one of them had just bought a flight on Delta to fly to Georgia with his GF. They booked it the night before they filed and than the next day got an email that said there reservation price was going up. After an hr of b****ing they got that taken care of. Than he's asking us if his airline miles (I guess he has a lot of them) are still going to work. Of course none of us have a freaking clue (we ain't in the airline industry), but I'm gonna tell him this just to scare the hell out of him.

[Chisoxfn]

I should bust out my industry report.

 

I think I said this four years ago (BEFORE 9/11).  But then again, writing that wasn't rocket science.

 

Putting together solutions was though.  It's one of the reasons we got out of bankruptcy.

If Warren Buffet won't invest/be a part of the airline industry, neither will I.

[Chisoxfn]

Southwest is mostly not in the same boats because they get hedge contracts on fuel. Meaning that they're paying about a third less than most airlines at the moment. Or so I've heard.

So they are smart enough to hedge their bets buy buying futures in oil so if the oil prices go up, there futures go up which makes the increase to their fuel a little less. Not a bad idea, especially if it works.

 

I know anyone sucessful in international trade would do the same thing (hedging the currency) so it would make sense to hedge your fuel costs as best as possible.

 

I'm taking an awesome international finance class right now (its my only good class, so by the end I'll be exporting Sox jerseys to australia for Dbaho, haha).

 

Southwest is also great because they flat out have a low cost structure, but all their flights are full. They also have a younger fleat of aircrafts which helps them keep maintenance charges down. A lot of airline companies say Southwest will hit problems when their fleet gets older (same with Jet Blue) but they seem to be smart.

 

Heck, I only fly southwest, unless I'm going to Iowa (since they don't fly to Sioux Falls, SD).