FlyerTalk Forums - View Single Post - AeroMexico--another DL investment partner bankrupt
Old Jul 1, 2020, 11:39 am
  #12  
ethernal
 
Join Date: Feb 2017
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Originally Posted by wlau
First, I don't think people are saying Delta is committing security frauds, let's get that straight. But at the same time, you can't argue these issues or concerns don't exist - they happen again and again. The stories we read about always have a pattern that people raise issues early on but they were ignored but then it eventually surfaces.

There are warning flags that have coincided with other companies. I have no issue with someone raising a red flag and questioning a company's books if there is evidence to point to. Just ignorantly handwaving and saying "oh, you never know, Delta may be committing securities fraud" is a not a value adding comment and - when unsubstantiated with evidence - quite frankly offensive. You're literally calling Delta's leadership and potentially significant portions of their finance organization criminals. There's a difference between complaining about criminally bad customer service and actually literally accusing (or at a minimum implying) someone of being a criminal. Maybe folks care less about white collar crime accusations or implications but this is no different to me than making baseless accusations or implying that Delta's CFO might be a murderer. I mean, I'm not saying he is, but you never know right? We find out people are murderers all the time...!

Because Delta invested in foreign companies, you can't pretend laws and regulations in those countries are the same as ones in the US. Any bankruptcy or similar proceeding will likely discharge debt but also lessen the value of Delta's shares and dilute or lessen Delta's control and influence in those companies. These are not small companies Delta invested in, they often have government involvement or started as a state entity/company. You can't predict what will happen to Delta's shares. Delta is in a world of hurt and can barely manage its own network and operations, and said they don't have the means and resources to help those partners and take equity enhancement steps.
This has basically zero impact on Delta as it relates to bankruptcy risk / survival in their current situation. None of their current debt is tied to their equity ownership in their partners and the money they spent to invest in them left their coffers a long time ago. Obviously yes it impacts their market cap but any institutional investor was already valuing Delta's share of Aeromexico, LATAM, and Virgin Atlantic at basically $0 for months. Aeromexico actually declaring bankruptcy has literally zero impact to Delta at this point - the damage was already done. Investors assume that the French/Dutch/Korean governments will bail out their national airlines so they may still ascribe value to those, but I can guarantee you that any value ascribed to their minority stakes in the first three were marked down to zero late March by anyone who was paying attention.

I am saying Delta's network strategy of foreign investments instead of organic growth seemed smart but when a global pandemic hits, then it will yield terrible outcomes, compounded by the fact that those companies weren't in a good shape to start with. Otherwise, they wouldn't want Delta's investment in the first place. When you grow your own network, your stake in the product and company don't change...
I think questioning their partnership strategy is a fair debate. But ironically, I would actually argue that in this case their partnership strategy has actually been beneficial if the alternative meant that Delta has even more VLAs that they would be paying mortgages on and even more pilots they would have to lay off. The cost of building up the same international presence organically would mean that Delta would actually be financially weaker than the comparatively cheap purchase of partner equity stakes. The devaluation of the equity stake is painful of course, but it is clean and the cashflow impact was incurred long ago - as opposed to the alternative which has future cashflow implications (pilot and crew salaries, plane leases, etc).
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