ab2013

First DL partner - next up VS?

http://www.bloomberg.com/amp/news/ar...ators-k992yqn6

WhiskeyBravo

Ah interesting. I speculate DL ends up taking at least 20% of the resulting company.

BenA

Yes, I suspect VS will need to reorganize in some fashion too very shortly. VA and VS are suffering from the one-two punch of a powerful national competitor who would like to see them gone (QF/BA) and a brand image centered around the mystique of a billionaire owner (making the optics of public assistance look particularly unfortunate).

Korean Air is very next up on the grim list of financial difficulties, but they are likely to get a bailout of some kind from the Korean government, so I'm less worried about the long term fate of that partnership.

Aeromexico isn't in fantastic shape, either, but they've taken a hard line approach to cash conservation (by refusing to refund tickets, for example). They were already down aircraft due to the 737MAX fiasco, so the compensation from Boeing combined with no longer needing those planes for a while will work in their favor. I think they'll probably make it through relatively intact, although they will certainly be hurting for a while.

AFKL will probably survive - they aren't operating from a position of strength by any means, but I expect EU countries to be fairly supportive of their national airlines in the same fashion.

LATAM has a ton of cash on hand, which buys them a little more time than some of their competition. Again, still not particularly strong, and could be heavily exposed if COVID outbreaks aren't effectively controlled in their home markets.

Delta has been using a very rational strategy of "invest in airlines with potential who are in mild financial distress and who need adult supervision from an experienced partner"... but this crisis does expose the flaws in that plan. I certainly wouldn't be expecting DL to dramatically increase their investments or mount a further bailout, although I could see them coordinating deals with other partners like Amex. In general, Delta has its own problems to worry about and can't afford the optics of spending money bailing out international partners while simultaneously asking for domestic taxpayer assistance; it's possible that they may be a minor participant in bankruptcy/administration exit/emergency funding to preserve their investment in certain cases though.

CPMaverick

Going under isn't really correct. This is like bankruptcy. It's possible that VA will dissolve, but more likely they will just reorganize.

The optics of VA in Australia have nothing to do with Branson to be honest. Virgin Group only owns 10% and are the only shareholder that has actually said they'd be willing to put more money in to sort things out.

The problem with government help is that VA is 91% foreign-owned, and 40% Chinese-owned. Australian taxpayer money paying back chinese-debt is not a popular move right now.

kop84

Really every airline is in trouble. Some are going to be in the first wave, but without massive worldwide government intervention virtually every airline is going to go under. There aren't many business with such high fixed costs that can sustain what amounts to a 99% drop in demand in one week. And demand likely doesn't creep up for several more months.

I bet it's at least a decade before the number of flights reaches December 2019 levels again. (globally not just DL)

Duke787

Talk about all time screwup for Richard Branson on the Virgin Atlantic front. Backing out of the 31% equity sale to AF/KLM at the last minute in December is going to turn into an extremely costly decision for him personally (and at the same time a big relief for AF/KLM)

SSF556

VA needs to tell China to go away....

mayhem

I'd assume VA is less of a priority than VS for DL. I'd see VA restructure to a domestic only operator and dropping its international 777 ops (which would be very sad since I loved that J product).
VS is more essential for Delta so they don't lose slot access at LHR which will eventually recover

TomMM

Don't know about optics but Branson did offer his private island as security for loans.

flyerCO

China has been mentioned as possibly coming into to rescue VA. Not sure of details, but I guess by increasing ownership.

ab2013

At this point, I can't see DL swooping in and saving VS. DL's top priority is to ensure that it is conserving cash so that it lasts as long as possible.

HDQDD

Looks like South African may also be going under. This is just the beginning I'm afraid.

Yellowjj

South African has been on the brink for years now; living from one loan to the next. They remind me of Alitalia in a way.

Duke787

I think technically (and legally) DL can't go over 49.9% due to EU law (which the UK is still under for aviation through the end of 2020).

That was the whole point of the complex VS/DL/AF/KLM transaction that was supposed to happen -- so that effectively DL/AF/KLM controlled VS but avoided running into the legal requirements.

Same deal in Australia -- I believe DL could only own up to 49% (same as any other foreign carrier) which is part of why they have such a complex ownership structure for VA.

ab2013

Oh I was thinking about scenarios where DL supplies VS an emergency cash infusion or a loan but I'm actually not sure if that's illegal. (Might be thinking of DL funding PanAm in its final days)

Last I checked, DL only has equity ownership of VA in the single percentage points but this doesn't bode well for its other partnerships and investments.