Asset Sales

[ohcaptainron]

Delta Selling Eight Planes to FedEx

By Eric Gillin
TheStreet.com Staff Reporter
9/22/2004 5:19 PM EDT
Click here for more stories by Eric Gillin



Let the asset sales begin.

Delta Air Lines (DAL:NYSE - news - research) has arranged to sell eight MD-11 aircraft to FedEx (FDX:NYSE - news - research), TheStreet.com has learned. The deal could net more than $200 million for the airline, buying it time to negotiate wage concessions from pilots as bankruptcy looms.

In a Wednesday morning conference call discussing first-quarter earnings, FedEx management said it would boost its annual capital spending budget by nearly $400 million to $2.1 billion. Execs added that the company would use the money to fund an "opportunistic purchase of eight MD-11 passenger aircraft in excellent condition at attractive prices."

Delta didn't immediately return a call seeking comment, and FedEx declined to comment. But people close to the sale say that Delta could be revealed as the mystery seller by the end of the week.

Related Stories
Delta Air, Pilots in Pension Deal
Delta Plan May Not Fly
Rivals Eye Delta's Revival Plan
Delta Cutting 7,000 Jobs
Optimism Grows About Delta-Union Talks


Indeed, Delta owns exactly eight MD-11s and has them in storage, according to BackAviation Solutions, an aviation consultancy. Michael Allen, operating chief at BackAviation, says Delta seems apt to sell planes, given its financial difficulties.

"FedEx said they were capacity constrained on some business lines and needed to find additional aircraft," adds Helane Becker, airline analyst at Benchmark Co., a New York brokerage. "A few years ago, they bought some MD-11s" from the American Airlines unit of AMR (AMR:NYSE - news - research) and the United Airlines unit of UAL (UALAQ.OB:OTC:BB - news - research), Becker says.

Now, "Delta has the only fleet that's available for sale," she adds. "There's not a lot of MD-11s out there and Delta's are parked in the desert."

According to Allen, six of Delta's MD-11s are more than a decade old and are worth roughly $30 million each. The remaining two MD-11s are between six and eight years old and are valued at nearly $37 million. All told, FedEx will be buying eight MD-11s with a value of between $246 million and $262 million. But the shipping giant will likely get a discount.

 

[lpbrian]

This is really nothing new. These planes were parked some time ago, and have probably been for sale since. I think they are parked in Goodyear, Ariz.

 

[coolflyingfool]

It is a win-win for both airlines. Delta gets cash and Fedex gets planes. I think everyone is happy.

 

[WorldTraveler]

It’s hard to characterize this as the beginning of a fire sale at Delta. The MD-11s have been parked for months and have no future for any airlines as passenger aircraft. Delta does well to get rid of the owned MD-11s but the leased aircraft might be trickier since they are supposed under tax-leveraged leases, or something like that.

If it comes down to asset sales, Delta will not do well relative to other large airlines. Like US, most of its assets are slots and facility leases in the eastern US rather than valuable international authorities held by other airlines; indeed, nearly all of Delta’s international flights operate to countries with which the US has liberal air service agreements.

Not to worry, though. Delta will be doing the acquiring from some of the industries most beleaguered carriers in the future.

 

[TheDog2004]

Delta's been trying to sell these things for years. Glad to see they finally found a buyer.

 

[Whadayano]

If they are leased, then the lease holders are no doubt breathing a sigh of relief--no worry about Fed Ex filing C11.

 

[FWAAA]

If they are leased, then the lease holders are no doubt breathing a sigh of relief--no worry about Fed Ex filing C11.

[post="183613"][/post]​

Fedex is apparently buying the 8 owned MD-11s; DL leases 5 others.

But since the owned aircraft are encumbered, the lenders are no doubt happy.

 

[WorldTraveler]

Actually, the M11s and M90s were not fully encumbered; undoubtedly a big part of DL's incentive to sell the M11s is because they can provide cash right now.

 

[mrfish3726]

Was Delta smart enough to aquire the Cargo Door modification contract like AA was when they got rid of their MD-11'a to FED EX?

 

[JFK777]

Delta is just "cleaning out the closet". The MD-11 were good planes in 1990 but not in 2000. I hope DAL uses the money for something constructive like buying 2 new 777's. DAL shoud get rid of the Md-90's, 737200/300's & 767-200's.
Sell stock in Comair & other express airlines they own. Get the greedy pilots to take a better part of a billion dollar pay cut.