DL invests in, deepens ties with China Eastern

WorldTraveler

Corn Field
Dec 5, 2003
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http://finance.yahoo.com/news/china-eastern-delta-solidify-strategic-113000219.html

"The cooperation between China Eastern and Delta is a strategic cooperation between two excellent airlines which connect the world's two top economies as well as two top air transportation markets. We're fully confident in the prospect of the cooperation," said Shaoyong Liu, the Chairman of China Eastern.

"Delta's equity investment in China Eastern is an investment in the future success of the partnership," Anderson said. China is the second largest travel market from the US and is projected to grow more than twice the global average, becoming the largest market from the U.S. in the next few years.


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DL clearly intends to have a network of equity alliance partners around the globe in the most strategic markets supplemented by joint ventures.
 
might be over your head but it matters for some companies to have a long-term strategic presence in key partners.

Note that DL has an observer board presence which isn't the voting presence that it has in Gol, Aeromexico, or Virgin Atlantic but it does provide access to an Asian airline that no other US airline and few foreign airlines have to the Chinese market.
 
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Incredible how much cash Delta continues to expend, and liabilities Delta continues to assume, in the pursuit of "locking in" partners, and notable that AA and United don't feel the need to do this to anywhere close to the same extent.
 
Nonetheless, Delta obviously has the cash and this seems smart - I suppose this cements another partnership and keeps another airline in Delta's orbit from another strategically important market where Delta is at a structurally disadvantage to a competitor.
 
It will be fascinating to watch what impact, if any, this plus the Skymark flirtation has on the relationship with Korean - which remains, in my view, by far the most attractive partner of the three (in terms of network) for Delta.
 
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WorldTraveler said:
Note that DL has an observer board presence which isn't the voting presence that it has in Gol, Aeromexico, or Virgin Atlantic but it does provide access to an Asian airline that no other US airline and few foreign airlines have to the Chinese market.
 
What exactly is the advantage of having an observer board presence?
Honest question, what is the significance, or more precisely, what are the limitations? 
To me the board observer sounds more or less like the presence of the D.C. delegate in Congress (House of Reps.):  useless.  But in this case it seems is kind of odd since now DL owns a small piece of MU and not have a say  (vote) on the board..
 
DL is investing in MU because it has made sense in AM, G3, and VS and because there aren't 3 carriers in most global markets while there are 3 US global carriers; someone will be left out and it won't be DL.

JVs allow DL to do things that other carriers cannot and DL couldn't do even with a JV. A seat on a board with an airline in a country that does not have Open Skies with the US is a powerful thing.

an observer cannot vote as DL does with Gol, AM, and VS but they do know what is going on and can make comments on the sideline. Chinese law may not allow foreign companies to have a voting board presence. DL also might be entitled to review strategic documents and internal financial information. Being in the boardroom is powerful regardless of the form.

Like the refinery, equity investments in developing and key markets around the globe is a strategic exercise that DL is doing ahead of other carriers. Many called the refinery foolish and yet the refinery is profitable.

The wisdom of what DL is doing will become increasingly obvious beyond what is happening with DL's current equity partnerships.
 
The typical Delta P.R. recitations aside, I'm not quite convinced that all of these equity investments in airlines around the world truly constitute Delta conducting a "strategic exercise ... ahead of other carriers," or rather just Delta doing so despite competitors not really feeling the need.
 
But good for Delta and its "wisdom" ... too bad that "wisdom" hasn't been able to secure a competitive deal with the single Asian partner that matters the most - Korean.
 
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whether you or others see the value or not hardly matters to DL.

Few recognized the value of the refinery and yet is profitable.

DL is using a strategy that LH has used very successful; the primary difference is that LH focused on European airlines while DL is going global with its investments.

KE only matters if they are willing to share what they have - which they clearly are not. Further, KE and Asiana both carry enormous amounts of Chinese traffic. DL is going to the source, not the intermediary.
 
WorldTraveler said:
an observer cannot vote as DL does with Gol, AM, and VS but they do know what is going on and can make comments on the sideline. Chinese law may not allow foreign companies to have a voting board presence. DL also might be entitled to review strategic documents and internal financial information. Being in the boardroom is powerful regardless of the form.
 
While I think that DLs investments, such as in VS and other investments where DL has a voice (vote) on the carrier's BoD is of value, I'm not going to share the same 'excitement' for MU.  While I don't know Chinese foreign ownership rules, it may also be that MU is in the driver's seat here and told DL the price for a vote on their board, to which DL probably said no way, resulting in the consolation price of an observer.  Which is sad because DL didn't just purchase a few shares.
 
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DL didn't ask for your excitement.

the rest of your post is merely biased speculation

get the facts first and then build your theory; what is sad is that you think you can get by with spouting your opinion without any facts and expect anyone to see it as anything of value.

DL is doing what it is doing with MU because it works elsewhere and because DL can do with MU what other carriers cannot.
 
WorldTraveler said:
DL is using a strategy that LH has used very successful; the primary difference is that LH focused on European airlines while DL is going global with its investments.
 
Not quite.  LH invested in EU carriers (such as LX, SN, OS) because this way it allowed LH to have complete control (perhaps a 'master airline' strategy?).  The equivalent of that would be DL buying up U.S.A. based carriers.
Aside from their ~15-20% stake in B6, LH didn't go shopping globally.
 
I've done paid work for MU, so can't go into too much detail, but I suspect it may have been a "pay to play" move on MU's part. MU is a diamond in the rough and they know it.

DL also knew that MU could easily leave Skyteam for oneworld, but the equity investment is of far more value to MU than whatever alliance feeds **them** some incremental traffic. And make no mistake -- both MU and CZ use Skyteam to give them stature, not to extend their global reach.

This may, ironically push CZ into changing alliance teams. They're clearly the uglier of the three sisters in terms of knowledge and quality, but they do have a larger footprint than MU.
 
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LH's Anschluss Strategy was to buy up carriers that were within LH's sphere of influence, and that they **could** legally take control of. They could have merged or rebranded Swiss, Austrian, etc., but the name recognition and national pride attached to those carriers was great enough that they chose to take control and leave the brands intact. They've engaged in considerable joint purchasing and negotiations with suppliers as well.

That's no comparison to what DL has been doing -- they're investing well outside their sphere of influence, in carriers with a nominal franchise value, and where they can't have meaningful control.

Virgin is the exception on control -- 49% control does have benefits. While VS is a strong brand, marketing aside, they're not exactly a global player, but it's the smartest investment they've made outside the US.

AM is strong only because they have no other major competitor, and arguably dodged the bullet that took out MX simply because MX's labor contracts expired first. (AM's agreements were mirror images of MX's, and it took MX's collapse and implosion for the unions to renegotiate with AM)

Gol? Jury is still out on that one. They do OK, but TAM is the gorilla and Azul is the marketing genius. Gol sort of operates in both their respective shadows.
 
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eolesen said:
I've done paid work for MU, so can't go into too much detail, but I suspect it may have been a "pay to play" move on MU's part. MU is a diamond in the rough and they know it.

DL also knew that MU could easily leave Skyteam for oneworld, but the equity investment is of far more value to MU than whatever alliance feeds **them** some incremental traffic. And make no mistake -- both MU and CZ use Skyteam to give them stature, not to extend their global reach.

This may, ironically push CZ into changing alliance teams. They're clearly the uglier of the three sisters in terms of knowledge and quality, but they do have a larger footprint than MU.
 
within the legal requirements and allowances of each alliance, ANY partner can switch alliances... but those agreements have alot more teeth in them than you and other people acknowledge or carriers would be switching alliance partners all the time... but they don't. 
 
DL said right off the bat that SEA-PVG was profitable and it was heavily driven by connections in PVG... and that was before colocation at PVG. 
You have no idea whether the economics of DL's connections or relationship with MU is above the investment level.
 
And it is an investment... which means that DL could sell them..... it is not any different in that regarding that buying aircraft..... the investment has value in itself.  and it could also be secured by assets which have not publicly been identified.  Even if it is not, China is a growing market and MU has a very large position in the largest business market in China.
 
and since DL has repeatedly said in SEC filings that its equity investments in its current carriers result in 10s of millions of dollars of additional revenue that it couldn't get any other way, it is very likely that the economics really do work.
 
 
eolesen said:
LH's Anschluss Strategy was to buy up carriers that were within LH's sphere of influence, and that they **could** legally buy & merge or rebrand, but the name recognition and national pride attached to those carriers was great enough that they left the brands intact while taking control of what really mattered. They've engaged in considerable joint purchasing and negotiations with suppliers as well.

DL seems to be investing well outside their sphere of influence, and in carriers with a nominal franchise value.

Sure, VS is a strong brand, but marketing aside, not exactly a global player.

AM is strong only because they have no other major competitor, and arguably dodged the bullet that took out MX simply because MX's labor contracts expired first. (AM's agreements were mirror images of MX's, and it took MX's collapse and implosion for the unions to renegotiate with AM)

Gol? Jury is out there. They do OK, but TAM is the gorilla and Azul is the marketing genius. Gol sort of operates in both their respective shadows.
 
all of which fail to acknowledge that DL has investments in other airlines and yet no oher US carrier has any at all.
 
Given that DL has access to information and the strategic planning process that other carriers simply do not have, DL's investments do make sense.
 
DL has not tried to invest in global carriers but rather specialists in their region... in each case, those carriers are the top 1 or 2 carriers at their home bases.
 
Brazil is a mess all around.  TAM has a larger int'l network but it is smaller than Gol within Brazil.  TAM is also cutting its domestic network by high single digits.  you don't do that if you can profitably fill the seats you are offering.   
 
and it is not legal for a US carrier to own partial equity or partially control another US carrier.  either you own it outright or there is a complete arms length relationship that is no different from that with any other competitior. 
 
Feel free to let us know what other global carriers are using a strategy similar to DL's if LH isn't the best example - and it isn't because of the Euro/global comparison.
 
But just because airlines don't own refineries didn't make it a bad investment for DL to do so or right because other carriers didn't see a need to do it, despite howls of disapproval here
 
United has recently agreed to make an invest in Azul.  But nonetheless, it's true that "no other US carrier" has been nearly as aggressive as Delta in making investments in foreign airlines.  As said, though, I'm not yet convinced as to whether or not this is a sign of the strategic strength or weakness/vulnerability of Delta's network.
 
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