As it announced its intention to emerge from bankruptcy early, Delta (DALRQ) outlined plans indicating, in an effort to maximize value for shareholders, it is considering spinning off assets, which, according to CFO Ed Bastion, includes wholly owned Delta Connection Comair, making its future murky.
Although it hammered out final labor agreements last month, relations between the management and labor remain extremely problematic. Any suitor would be inheriting these problems which, with its financial problems, have kept suitors at bay in the past. The move would end the seven-year ownership of the troubled, Kentucky-based carrier which feeds Delta’s Cincinnati hub. Delta bought Comair for $2.3 billion dollars in 2000.
In a day-long investors conference, Bastion indicated once the company emerges, it will have to see whether owning the company makes sense. Delta already sold Atlantic Southeast to SkyWest (SKYW) in 2005 and the trend is away from major-carrier ownership of regional partners.
Mike Boyd, Colorado-based Boyd Group, told the Cincinnati Enquirer, Comair's appeal won't improve with time. Industry pundits believe the chances are high for a sale and the sooner the better for Delta which could use the cash. It will probably go to another regional, many of which – Mesa (MESA), SkyWest and Republic (RJET) are flush with cash. All already operate as Delta Connections but observers indicated it could also be acquired by Air Wisconsin or Pinnacle (PNCL), the later of which is seeking diversification after adding Continental (CAL) to its Northwest Airlink operation. Related Story
Boyd thinks the major carrier could get $200 million for Comair depending on whether it includes attractive long-term contracts to the buyer such as it did when SkyWest acquired ASA. He doubted the value would reach $500 million since Comair’s fleet is mostly 50-seat jets which are being retired in favor of larger aircraft.
Plans now call for emergence April 30 compared to previous projections of early May when Delta's stock is expected to be listed on the New York Stock Exchange, something for which it recently applied. Its new 11-member board was expected to be announced as press time and will include at least three current members and CEO Gerald Grinstein who will remain until his successor is named.
In addition to building markets in the Northeast through Boston, Delta plans to build its international service out of New York City's Kennedy International. Improving customer service is high on its agenda including some of the sticky issues that impact its regionals such as baggage handling and operational performance. It is also going to build its maintenance repair and overhaul business .
It will continue to expand its international service, with a special focus on JFK.