Jefferies sees 450 point headwind to 2023 Delta CASM-ex if pilot pact passes

Jefferies analyst Sheila Kahyaoglu points out that Delta reached a preliminary agreement with its pilots union that offers a 34% cumulative raise over the next three years and the analyst puts 50% odds on the contract being ratified, noting that some pilots have expressed concerns surrounding pay raises not being high enough. If Kahyaoglu assumes the "touted" $7.2B of value to pilots over four years is spread evenly over the four-year span, the new contract represents a $1.8B headwind to costs and in terms of 2023 would add 66c to 2023 CASM-ex, or total operating expenses, net excluding fuel expense divided by ASMs, equivalent to a 450 basis point headwind relative to 2019 CASM-ex, the analyst estimates. If Delta’s contract is ratified, she expects the rest of the industry to quickly ratify contracts that bring pay rates to Delta’s level, added Kahyaoglu, who has a Buy rating and $40 price target on Delta shares.