Delta May Sell Regional(s)

[FrugalFlyerv2.0]

Aviation News
Delta in talks to sell its regional carriers
Report: Airline to sell one or both of its carriers to SkyWest
MSNBC News Services
Updated: 11:14 a.m. ET March 8, 2005

NEW YORK - Delta Air Lines Inc. is in talks to sell one or both of its regional airline subsidiaries to SkyWest Inc., the largest independently-owned commuter carrier, according to a report in Tuesday’s online edition of The Wall Street Journal.


Bradford Rich, chief financial officer of SkyWest, said at an investor conference that Delta had expressed “more than just an interest†in selling the two subsidiaries, Comair and Atlantic Southeast Airlines, the Journal reported.

The third-biggest U.S. airline in terms of traffic, Delta is struggling to cope with huge financial losses as it follows a turnaround strategy comprising of a simplified fare structure, cost-cutting and an effort to improve customer service, the Journal said.

Delta has said publicly in the past that it was evaluating all of its assets, including its feeder carriers Comair and Atlantic Southeast Airlines, as it seeks to return to profitability. The company lost more than $5 billion last year and has been racked by continually high fuel prices.

Cash-strapped Delta has narrowly avoided bankruptcy in recent months. The company reported a $2.2 billion loss for the fourth quarter, the Journal said, adding that Delta shocked investors by saying it plans to tap the last of a $1.1 billion cash infusion that it received last fall, raising the possibility that it will have significant cash needs later this year as fuel costs remain high.

The Journal also reported that SkyWest’s Bradford Rich said at the Raymond James Institutional Investors Conference in Orlando, Fla., that he thinks SkyWest is in the best position of any company to take advantage of the opportunity of acquiring the Delta subsidiaries, but he didn't specify whether SkyWest was interested in one or both of the carriers and reportedly said that the discussions are in the early stages.

A SkyWest spokeswoman at the company’s headquarters in St. George, Utah, could not immediately confirm Rich’s comments or provide a transcript of the comments when reached Tuesday by The Associated Press.

Asked about the report, Delta spokesman John Kennedy said Tuesday, “It’s Delta policy not to comment on industry rumor or speculation. It would be inappropriate for us to discuss Mr. Rich’s comments.â€
Reuters and the Associated Press contributed to this report.

 

[funguy2]

Interesting how quickly things change!

DAL acquired Comair and ASA to prevent them from becoming so large as to become a threat (an ACA/UAL scenario). And now they want to sell them (obviously for the cash) and create an even bigger potential threat!

This is a very interesting tidbit indeed...

I wonder if DAL would be better off floating some stock in DCI, but retain at least 51% of it... I think this would be similar to the CAL/ExpressJet arrangement, which seems to work for both parties (currently).

[Does CAL still own majority control of XJT? I looked (quickly) but did not see any ownership information...]

 

[FWAAA]

[Does CAL still own majority control of XJT? I looked (quickly) but did not see any ownership information...]

[post="253654"][/post]​

I wondered the same thing. Here's the most recent thing I could find (from the October 10-Q):

Investment in ExpressJet. During the third quarter of 2003, we sold approximately 9.8 million shares of our Holdings common stock to Holdings, reducing our ownership interest in Holdings from 53.1% to 44.6%. In a subsequent transaction in the third quarter of 2003, we contributed approximately 7.4 million shares of Holdings common stock to our defined benefit pension plan, further reducing our direct ownership of Holdings to below 31%. We recognized gains totaling $173 million in the third quarter of 2003 as a result of the sale of Holdings shares to Holdings and the contribution of Holdings shares to our defined benefit pension plan.


Prior to these transactions, we consolidated Holdings because we owned over 50% of the voting interest in Holdings. Following these transactions, we would have deconsolidated Holdings and accounted for our interest using the equity method of accounting set forth in APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock", which was the applicable accounting literature prior to the adoption of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). However, we adopted FIN 46 on July 1, 2003 and elected to restate prior period financial statements for retroactive application.

http://phx.corporate-ir.net/phoenix.zhtml?...CZhdHRhY2g9b24=

Looks like its pension plans are now the majority shareholder in XJET. In January, CO contributed more XJET to its employee pension plans, recording a large gain on the "sale" which reduced its $98 million Jan loss substantially. CO has insufficient cash to contribute to its plans, so it is slowly giving its employees XJET instead.

 

[funguy2]

Thanks for the context... Because the quote doesn't make much sense to me.

 

[coolflyingfool]

I would think that DL would only be selling off 49.5% of the commuters, just to make sure that they don'e end up getting burned. If they do sell off the whole thing, I look for a long-term exclusivity contract to be signed. If Skywest were to violate that contract then they would have to pay DL an insane amount of money. Just my thoughts.........

 

[funguy2]

I would think that DL would only be selling off 49.5% of the commuters, just to make sure that they don'e end up getting burned. If they do sell off the whole thing, I look for a long-term exclusivity contract to be signed. If Skywest were to violate that contract then they would have to pay DL an insane amount of money. Just my thoughts.........

[post="253675"][/post]​

SkyWest cannot be exclusive to DAL, since they currently have a contract with UAL (unless that is something UAL inteneds to change).

 

[WorldTraveler]

Unfolding just as I've predicted....

Skywest is a fine operator. DL will not ask for exclusivity and probably won't sell all of either carrier completely to SKYW. SKYW has about $ 1/2B in cash which wouldn't buy either Comair or ASA outright although they certainly have room to take on debt or find an equity partner.