午後は東京とのConfcallに参加してから、ベルビュースクエアのNordstromでまた、さっきみた革のジャケットをみました。欲しいなぁ。定価で2,000ドル。Crate and BarrelでNespresso Machineが25% offだったので購入してしまいました。
Thanksgiving前の週末です。朝7時からベルビュークラブで2,000m Swim。「今日はこの後ニューヨークなの。」「あら、私もこれからカリフォルニアよ。Happy Thanksgiving!」こんな会話がコンドのエレベータやスポーツクラブで、聞かれます。
ATLANTA—A jetliner parked in a cavernous hangar here boasts a gleaming paint job, 160 pristine blue leather seats and a new-airplane smell. But this latest addition to the Delta Air Lines Inc. DAL -1.69% fleet isn’t new.
Not by a long shot. The twin-engine MD-90, acquired from China Southern Airlines Co., 600029.SH -1.18% is more than 13 years old. It is one of 49 used McDonnell Douglas MD-90s Delta is rehabbing after scooping them up from global airlines that were thrilled to get rid of a plane that no longer is built by a manufacturer that long ago was taken over by Boeing Co. BA -0.38%
Most large carriers prefer fuel-sipping new planes with the latest high-tech gadgetry. But Delta, which has one of the oldest fleets in the U.S., is making a habit of succeeding by zigging when its rivals zag.
The nation’s second biggest carrier stunned the industry by becoming the first airline to buy an oil refinery, in a bid to trim its highest and most volatile operating cost, aviation fuel. It runs a huge maintenance subsidiary that tends to its own planes and does third-party work, while other airlines have scaled down or bailed out of that business. And the Atlanta company has retained its status as the only major U.S. airline that is mostly nonunionized, giving it more flexibility than its rivals even as it pays most workers more.
Today, Delta is in the catbird seat as the U.S. industry undergoes a much-needed transformation to become more like other businesses that produce steady profits and returns to shareholders. After decades of boom-to-bust overexpansion, profligate spending and chasing market share instead of profitability, the new flight plan calls for pricing tickets to cover costs, pulling back in markets that don’t make money and—above all—controlling spending with an iron hand.
Oddly enough, that cost-cutting effort has focused on an asset most airlines avoid: older planes. Though some safety experts once fretted about them, most now say that, with careful maintenance, older jets can fly safely. According to data compiled by Boeing, only 12 of 36 commercial jetliner accidents in 2011 that destroyed planes or caused substantial damage involved aircraft 20 years or older.
Besides the MD-90s, Delta is picking up the leases on 88 Boeing 717s with an average age of 11 years from Southwest Airlines Co. LUV +1.02% The discount king was so eager to shed the leases it inherited in its purchase of AirTran Airways that it took a $137 million charge to retrofit them for Delta. Yet even with the planes’ higher fuel and maintenance costs, Delta figures it is saving at least $1 billion on the MD-90 purchases, compared with buying new planes, making them roughly 10% cheaper to operate per seat than new 737s. It won’t say how much the 717s are saving, but its fleet strategy executive said he is “thrilled about the deal we got.”
These bets could go south if fuel prices take off, the planes require more maintenance than expected or run into safety problems. But so far, Delta is thriving in its penny-pinching, and using the money it is saving to pay down debt, upgrade aircraft interiors, invest in new terminals and add passenger perks such as Wi-Fi in its cabins.
The company is in its third consecutive year of profitability and is on track to cut its net debt—liabilities minus cash—to $10 billion in 2013 from $17 billion in 2009. Fitch Ratings in June raised Delta’s debt rating by two notches to B-plus due to “a quick turnaround in their credit profile and operations,” said Sara Rouf, the Fitch analyst. While B-plus isn’t investment grade, she said she considers Delta “to be currently the strongest player in the much improved airline industry in the U.S., as it continues to march ahead of its peers on many fronts.”
For its customers, meanwhile, “older” hasn’t meant “later” in terms of flight performance: the carrier ran 86.3% of its domestic flights on time through the first three quarters of this year, fourth among the top 15 U.S. airlines, and the largest to be so punctual, according to the most recent government figures.
When the company entered bankruptcy-court protection in 2005, Delta shared the problems the rest of the industry faced. The U.S. had too many carriers and too many planes. The largest airlines were staggering under towering costs and low productivity while nimbler low-cost carriers were growing quickly and siphoning off domestic passengers. Fuel cost was on the rise.
To be sure, the measures under court protection that followed were painful to many of its employees, such as the airline’s decision to terminate its underfunded pilot pension plan, leaving the federal Pension Benefit Guaranty Corp. to pay retirees at often-smaller amounts. But the carrier used its time in court protection to excise $2 billion in annual expenses and launch a big international route expansion. It also fought off a hostile takeover bid from US Airways Group Inc. LCC -2.49% The year after it emerged from Chapter 11 in 2007, it acquired Northwest Airlines Corp., which had stepped out of court protection around the same time, cleansed of costs and debt.
The combination is headed by Richard Anderson, a 57-year-old lawyer who worked at Northwest for 14 years, including the final three as CEO, before leaving the airline industry to become a senior executive at UnitedHealth Group Inc. UNH +1.27%
Mr. Anderson said he learned a lot from the health-benefits company’s CEO, Stephen Hemsley. “He had a razor focus on how you use cash and invest cash and return cash to shareholders,” said Mr. Anderson, who still speaks with a bit of twang from his native Galveston, Texas.
Mr. Anderson returned to Delta in 2007, first as an outside director and then as CEO. His first order of business was negotiating the 2008 acquisition of Northwest, and help Delta successfully work through a multiyear integration process, giving it a head start on rivals still embroiled in that exercise. It remade smaller Northwest almost entirely in its mold, taking special care to bolster Delta’s collaborative culture and stamp out Northwest’s legacy of testy labor relations. But Mr. Anderson did bring a few Northwest concepts to Atlanta.
One is that some older planes are worth hanging onto. “You don’t see hotel companies invest in hotels and then tear them down after 10 years,” he said. Another idea is that it is preferable to own planes rather than lease them “so when you hit softness or an economic downturn, you don’t (have to) fly empty planes with high monthly payments,” he said. Delta owns 75% of its fleet.
Mr. Anderson learned this from experience. In the mid-1990s, cash-strapped Northwest decided—with input from McDonnell Douglas and aging-aircraft experts at the Federal Aviation Administration—to keep 183 DC-9s, then 25-years-old on average—flying until they turned 40. The company even went out and bought 40 more from other airlines. Around that time, Mr. Anderson was the head of technical and flight operations at Northwest.
There is no consensus about how old is too old when it comes to a plane. The FAA and industry safety experts generally believe planes can fly for 30 or more years, as long as they are well-maintained and the carriers follow all the manufacturer and regulatory directives that require more frequent inspections and fixes as the planes get older. “Age really doesn’t play much of a factor if the airplane has been maintained,” said Kevin Hiatt, chief operating officer of the Flight Safety Foundation, adding that planes are generally retired for economic, not safety, reasons.
Today, Delta’s fleet is both old and complex. It has 10 different models in its 725-aircraft mainline fleet, and the fleet’s average age was 16.6 years at the end of September. The last of its 19 DC-9s, which came from Northwest, clock in at more than 34 years old, and are expected to be put out to pasture in the next year or two.
This compares with an average fleet age of about 12 years for United Continental and US Airways. Southwest’s fleet is 11-years-old on average while JetBlue Airways Corp.’s JBLU -1.39% planes are six years old. American Airlines has a 15-year-old fleet, but the company recently ordered 460 new aircraft.
Some analysts do see problems, of course, with the old-jet approach. Most of Delta’s rivals already have fewer aircraft types or aim to simplify their fleets further because that reduces the cost of training, maintenance and spare parts. They also are chasing every incremental reduction in fuel costs that new aircraft promise to deliver.
John Enders, an aeronautical engineer and aviation safety consultant, allowed that airplanes “have no practical end date.” But older planes require an “extremely careful inspection and maintenance system,” he said, and older fleet types might require a carrier to keep more “spares” in its inventory, meaning planes that would be at the ready if ones that were slated to fly had problems and had to be taken out of service for repairs.
The used-plane strategy even helped Delta win over its 12,000 pilots, its only major unionized group, to a new labor agreement reached over the summer. The 110-seat ex-Southwest 717s will be flown by Delta pilots, not aviators at regional carriers that fly on Delta’s behalf, meaning more jobs and upward mobility for the Delta cockpit crews. This will clear the way for Delta to save money by culling the number of money-losing 50-seat regional jets that its commuter partners now fly and letting the 717s fill much of that need. “Both sides saw the advantage of not doing things the old way,” said Buzz Hazzard, a spokesman for the Air Line Pilots Association.
At the heart of Delta’s older fleet strategy is its 2.7 million-square-foot complex of maintenance hangars and shops at Hartsfield-Jackson Atlanta International Airport, part of a unit that employs 10,000 people across the country. Delta TechOps, as the unit is called, can repair engines, paint aircraft, modify airplanes and overhaul landing gear. Last year, the profitable unit racked up $650 million in revenue, up from $25 million in 1995. Clients include the U.S. military, aircraft leasing companies and domestic and overseas carriers.
With its mechanics having 19 years of experience on average, Delta believes it has the built-in expertise to cosset its older birds. Doug Worley, a 23-year Delta mechanic in Atlanta, works on all variety of the carrier’s domestic aircraft. The McDonnell Douglas planes like the DC-9s and MD-90s are “workhorses,” he says. “They’re pretty reliable.”
New or old, planes use a lot of fuel. Even with hedging and fuel conservation programs, Delta last year spent nearly $12 billion gassing up the fleet, its single largest expense. At the prodding of the airline’s board, executives more than a year ago began studying the component parts of its fuel costs: crude, refining costs, refining margin, taxes and transportation.
They discovered a disconnect between refiners saying they couldn’t make any money and the soaring refining margins Delta was paying on its jet fuel purchases. When the company learned that an idled Conoco COP +0.81% refinery in Trainer, Pa., was for sale for $150 million, it took the plunge. It hired refinery professionals and signed contracts with two big oil companies to supply the crude and sell the gasoline and diesel output from the plant in return for supplying Delta’s jets with aviation fuel at airports around the country.
Delta figures it can save at least $300 million a year, supply 80% of its domestic fleet’s fuel needs and avoid the punishing refining margins it is paying today.
The facility restarted in September after being upgraded to produce a larger proportion of jet fuel. Delta is even exploring purchasing crude from the Bakken formation in the Dakotas and sending it by rail to Trainer, if that would be a better deal than taking crude shipped in tankers from Europe and the Middle East.
“I don’t like to hear anyone at Delta say fuel is out of our control,” said Mr. Anderson. “You might as well send up a white flag.”
Delta isn’t blind to the attractions of new aircraft, of course. Last year, it ordered 100 new Boeing 737-900s to replace older planes that will be retired. But it didn’t take the newest version, which Boeing expects to roll out in 2017 with more efficient engines.
Instead, Delta bought from the end of the current production cycle, getting a better price. “It’s just math,” said Nat Pieper, Delta’s vice president of fleet strategy and a veteran of Northwest. “Our fleet strategy is one of opportunism.”
Write to Susan Carey at Susan.Carey@wsj.com
A version of this article appeared November 16, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Delta Flies New Route To Profits: Older Jets.
With Microsoft (NASDAQ:MSFT) making major announcements this week and currently trading at its lowest level in months, is the blue-chip member a BUY, a WAIT and SEE, or a STAY AWAY?
Microsoft is one of the world’s largest technology companies, but its name is much more synonymous with boring. Mr. Softee has been slow to make a name for itself in regards to portable devices, online search and social media. It is trying to change its reputation and company fundamentals, but the early results are not encouraging.
The Surface was recently launched by Microsoft as an attempt to gain/protect market share in the consumer and business tablet industry. With a new operating system, built-in kick stand and keyboard, the device does appear to be very interesting, but sales are not attracting the kind of excitement that Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) seem to create on a routine basis. Speaking to the French daily Le Parisien, Microsoft’s chief executive Steve Ballmer recently said that sales of the company’s new Surface tablet are “starting modestly,” and declined to give an exact sales figure. Microsoft later claimed the comment was in relation to supply issues and distribution.
Digitimes also reports that according to upstream component suppliers, the Surface RT tablet may see sales reach only 60 percent of Microsoft’s forecast by the end of 2012. “The sources pointed out that Surface RT, as well as Asustek Computer’s Windows RT-based tablets, do not have an advantage in terms of a price/performance ratio, while Windows RT’s lack of supporting software from the previous Windows system and can only use software downloaded from the Windows Store has greatly reduced the attraction to consumers.”
A = A-Level Management Runs the Company?
Steve Ballmer joined Microsoft in 1980 as the first business manager hired by Bill Gates. He later became the CEO in 2000. However, his tenure at the the company is already too long according to many. Earlier this year, Ballmer was named the worst CEO of a large publicly traded American company by Forbes.
Adam Hartung explains, “Not only has he single-handedly steered Microsoft out of some of the fastest growing and most lucrative tech markets (mobile music, handsets and tablets) but in the process he has sacrificed the growth and profits of not only his company but ‘ecosystem’ companies such as Dell (NASDAQ:DELL), Hewlett Packard (NYSE:HPQ) and even Nokia (NYSE:NOK).”
Late Monday, the company also delivered another complication for investors looking at Microsoft’s management team. Steven Sinofsky, a 23-year veteran at Microsoft who was widely presumed to be a favorite for the chief executive’s position in the near future and was the man behind the company’s recently launched Windows 8 operating system, has left the software maker. The move was completely unexpected and many are wondering if it was part of a process by current chief executive Steve Ballmer to get a firmer hold on the company. Ballmer reportedly told employees in a memo on Monday that: “Steven Sinofsky has decided to leave the company.” Through a media statement he later added that it was “imperative that we continue to drive alignment across all Microsoft teams, and have more integrated and rapid development cycles for our offerings.”
E = Equity to Debt Ratio is Close to Zero
The debt to equity ratio is a measure of a company’s financial leverage. A high ratio generally represents that a company has been aggressive in financing its growth and operations with debt. While this may improve some metrics such as earnings in the short-term, too much debt can have disastrous effects in the longer-term.
Looking at Microsoft’s financials for its quarter ended September 30, 2012, it has a very strong debt to equity ratio of 0.77. This includes total liabilities and total stockholder equity. In comparison, Google (NASDAQ:GOOG) and Apple have ratios of 0.32 and 0.49, respectively. Facebook (NASDAQ:FB) has one of the lowest ratios in the tech industry with 0.12.
Although Microsoft’s ratio is higher than other major tech companies, it has plenty of cashfor operations and new projects. The company’s total cash position of cash and equivalents and short-term investments equaled more than $66 billion at the end of its fiscal first quarter.
Money isn’t everything, but it sure helps. Microsoft’s healthy balance sheet buys it plenty of time and resources to make attempts to reinvent itself. Unfortunately, it has yet to do so. Despite mostly positive reviews, the jury is still out on whether or not the new Windows 8 will spark a catalyst for the stock price. The same can also be said about the Surface tablet. Some may be quick to write off Microsoft and its consumer product offerings, but the Xbox should provide some level of hope. Taking into account these components of our CHEAT SHEET framework, we find that Microsoft is a BUY for investors seeking a solid dividend north of 3 percent and a cash rich balance sheet. However, shares are a WAIT and SEE for investors looking for strong capital appreciation and an improvement in management.
米運輸省（DOT）が15日、デルタ航空によるシアトル-羽田便の就航申請を暫定的に認可した。この路線はもともと、2009年の日米オープンスカイ協定の一環で米国航空会社の4路線が羽田就航を認められた時の経緯に端を発している。当時はアメリカン航空のニューヨーク便、ハワイアン航空のホノルル便、デルタ航空のロサンゼルス便およびデトロイト便が認可を受け、デルタ航空のシアトル便の申請は認可されなかった。デルタ航空は今年7月、「実際に運用してみると、東海岸と羽田を結ぶ路線は、西海岸-羽田路線よりも業績が劣っていた。シアトルは米国-東京路線のうち、羽田直行便サービスがない西海岸最大のマーケットである」として、デトロイト便からシアトル便への変更を DOT に申請。また、羽田空港で割り当てられる夜間スロット（午後10時から朝7時まで）の面からも、シアトルの方が適していると主張していた。なお、今回のデルタ航空の変更申請と同時に、ユナイテッド航空、アメリカン航空、ハワイアン航空もそれぞれサンフランシスコ、ロサンゼルス、コナからの羽田便を申請しており、これらの航空会社は今後10日以内に今回の暫定認可に対する異議を申し立てることができる。DOT は暫定認可にあたり、「デルタ航空の申請はパシフィック・ノースウェストの都市を発着地としており、現時点で羽田便がない地域からの唯一の申請だった」ことなどを理由に、「デルタ航空の申請が最も公益にかなっていると考えられる」としている。認可が確定した場合、デルタ航空は来年3月から Boeing 767-300ER 機でシアトル-羽田便を就航する計画となっている。