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AeroMexico--another DL investment partner bankrupt
https://www.reuters.com/article/us-a...-idUSKBN2413TG
DL has thrown away hundreds of millions of dollars with these poor investments. |
I wouldn't necessarily say poor investments... Many companies take calculated risks investing in other businesses, and depending in the industry that is the way to grow. A pandemic that destroys demand and revenue for months on end is not something businesses account for. There are going to be more airlines and other large businesses that file for Ch11.
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Originally Posted by sfozrhfco
(Post 32498015)
https://www.reuters.com/article/us-a...-idUSKBN2413TG
DL has thrown away hundreds of millions of dollars with these poor investments. |
Are we really going to fault AM for restructuring in bankruptcy, when DL has done the same before; and would be there right now if not for a bailout. Something AM has not received from it's government.
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Originally Posted by rylan
(Post 32498043)
I wouldn't necessarily say poor investments...
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Delta's partners are filing one by one and Delta is gonna lose a huge chunk of invested equity. I think Delta's own bankruptcy is inevitable. Of the big 3 US airlines, Delta is the most likely to fail given recently development. How sad...
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Originally Posted by sfozrhfco
(Post 32498195)
Ok, perhaps idiotic, horrible, terrible, etc would be better words. DL's former partner SwissAir tried the same strategy and went bankrupt themselves. They also had the experience of watching Etihad try the same strategy with similar results. DL should have been smarter that that.
(The answer is no.)
Originally Posted by wlau
(Post 32498331)
Delta's partners are filing one by one and Delta is gonna lose a huge chunk of invested equity. I think Delta's own bankruptcy is inevitable. Of the big 3 US airlines, Delta is the most likely to fail given recently development. How sad...
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Originally Posted by keitherson
(Post 32498332)
You think American Airlines, without these investments, is better off?
(The answer is no.) Actually, Delta is the best financed out of the big 3. Don't let facts get in the way... |
Partner bankruptcies present unique opportunities for strategic(dis)investment and (dropped) alliances. If you were at the helm, what would your long game be?
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Originally Posted by readywhenyouare
(Post 32498339)
We only know what Delta makes public. Who knows what their finances are really like. Just turn on the news. A prominent UK company that was thought to have been flush with money fooled financiers and is now being liquidated.
Of course there are occasional frauds that manage to mislead creditors and crappy auditors, but those are almost universally in smaller companies or what I would call are "weird/novel" industries that have more complex revenue generation schemes. An airline is pretty damn straight forward to audit because (1) there are industry best practices around airline audits because they are are a ubiquitous industry and (2) cashflow is really, really straightforward and trackable (customer buys ticket, or Amex buys points.. outside of some very small auxilarly revenue streams, that's basically it). We get it, you hate the idea of Delta not flying their own metal to middle-of-nowheresville and hate the fact that they rely on partners - and that even worse, the long-haul that Delta is doing is increasingly Airbus! But that preference is different than making ridiculous and unsubstantiated claims or accusations regarding material securities fraud. |
Originally Posted by ethernal
(Post 32498928)
You're being ridiculous. What you're basically accusing Delta of is serious securities fraud. Delta is a publicly traded company and has obligations to accurately report financials - quarterly and at any time there are material events that impact their financials in a material way. You're basically calling a portion of Delta's C-suite - including Bastian and Paul Jacobson - who sign off on the financials with an understanding of criminal liability for misleading representations or even failing to create the right controls to prevent "ignorance fraud" - criminals. That's quite a claim, even for you.
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. 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 hate to overstate the obvious but this pandemic has and will change the fundamental of the travel industry. My industry is also impacted by this pandemic but in somewhat positive way. When many businesses are making permanent changes to how work/business is conducted, and the world is taking on Zoom and Teams like never before, I think business travel will be forever changed. My entire company of Diamonds, 360, 1K, and Global Services all suddenly stopped flying and we are all discussing/planning on long term strategy without travel. On the financial side, there is also desire to reduce travel expenses now that we've seen how far we can go with zero travel. On the liability side, what sensible business will force their employee to travel given the potential exposure to risk. |
Originally Posted by wlau
(Post 32499693)
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. 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... |
Originally Posted by ethernal
(Post 32499739)
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...!
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 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). |
DL neither lied to the public nor the government. If you read the approval, you will see that DL lived up to the limited commitment it made for both MEM and CVG. As soon as the time commitment was up, DL did exactly what the then current business environment dictated: it dehubbed.
I don't see AM as a poor investment, simply an unfortunate circumstance after the investment was made. Going to happen every time there's a massive pandemic which shuts down air travel for a period of time. |
Originally Posted by Often1
(Post 32500365)
DL neither lied to the public nor the government. If you read the approval, you will see that DL lived up to the limited commitment it made for both MEM and CVG. As soon as the time commitment was up, DL did exactly what the then current business environment dictated: it dehubbed.
I don't see AM as a poor investment, simply an unfortunate circumstance after the investment was made. Going to happen every time there's a massive pandemic which shuts down air travel for a period of time. Just look at T-Mobile and Sprint... promises were made to grow jobs after merger but no, they started RIF in mass. So yes, businesses do mislead to get what they want and back-paddle and we should not condone it. You also make it sound like massive pandemic is regularly occurring to a point you used "everytime" to describe this. Since it is a predictable re-occurring event like you suggested, then there is even more a reason Delta should not have invested so heavily in these foreign partners. If you ever worked with foreign companies on a regular basis, you would know the complications of foreign regulations and laws. Instead of localized issue, this basically wiped out most of Delta's foreign investment. You clearly don't appreciate the difference between a writedown of an investment versus writing down an asset. The monies are basically gone... Even government in some country steps in the bailout the airline, Delta' share will be heavily diluted. The only real partner that might had some payoff is VS. KE barely came on board and the experience is so bad that I avoid doing through ICN if I can. MU is nothing more than buying local airport access and PVG transit experience is still horrid. AM also just started, so what DL got out of that arrangement isn't even worth the money they threw in there... The only possible brightside might be LATAM, since that wasn't formally done before this pandemic, hopefully DL's lawyers did their job and they can turn this to DL's favor. Most of my travel is international, and I honestly don't see the tangible benefits to passengers on those investments - and I am literally on those flights every week. The passenger experience didn't change or improve much at all, over that a straight up ST partner. The only one that is improved on experience is VS. |
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