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Topic: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 01:00:26 and read 8882 times.

If one checks the financials of US airlines on Yahoo.finance,one will find the actual market cap plus a virtual value,called
"Enterprise value "

For Delta,the figures are as follows :
Enterprise Value (3-May-08)3: 9.01B
Forward P/E (fye 31-Dec-09) 1: 13.93
PEG Ratio (5 yr expected): N/A
Price/Sales (ttm): 0.13
Price/Book (mrq): 0.65
Enterprise Value/Revenue (ttm)3: 0.46
Enterprise Value/EBITDA (ttm)3: 4.579

Now how do the gurus in Yahoo calculate that "Enterprise value" figure ?
I can't find similar values for foreign airlines like Lufthansa ,British Airways or Air France,which have a much bigger marketcap than US airlines.Could somebody enlighten me on this Enterprise value calculation ?

Topic: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 01:07:17 and read 8879 times.

Not sure if it's the same thing, but this might help:

http://en.wikipedia.org/wiki/Enterprise_Value

Topic: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 01:31:55 and read 8862 times.

Well Obviously Delta's market cap at 2.4 Billion is not close to what it is actually worth.

It depends on breakup value taken into calculation.

Take, for instance JetBlue people here believe the company is worth pennies and barely making ends meet. But, no one truly calculates that when their new terminal opens, only the value of the terminal will be around \$2.5 Billion

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 02:52:24 and read 8826 times.

 Quoting JFK787NYC (Reply 2):Take, for instance JetBlue people here believe the company is worth pennies and barely making ends meet. But, no one truly calculates that when their new terminal opens, only the value of the terminal will be around \$2.5 Billion

True; However, they are in no way paying cash for that...their equity in it is going to be much less, which is the only value to fairly add to their true worth... They also fly \$5 Billion+ worth of aircraft, but since they don't own the majority of their planes outright, they don't add to their value either.

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 03:41:14 and read 8791 times.

well it is quite a complex (non) science but in short, and keeping to basics,

Enterprise value is in fact the value of the whole business taking into account the size and quality of its earnings from flying (typically cash earnings i.e before depreciation and non cash items), its other assets to the extent not reflected in earnings ( eg freeholds and "surplus" cash balances and investments), an assessment of goodwill (effectively intangible asset values such as slots which although technically traded in some countries, do not typically feature on balance sheets. his would not be the value of all slots held as most of them are required to drive earnings but it is possible that n airline has a certain number of slots that it COULd trade,)

from that total, financial indebtedness is deducted and the value of the equity (market cap) is derived.

So 2 identical airlines would in theory have the same market cap if everything was identical (including management, CRM, FF database etc etc)
2 airlines with identical earnings will have different market caps depending on levels of financial indebtedness, markets perception of the quality of earnings and risks to those earnings and so on and so forth, efficiency of operations etc etc

Now, Airline 1 flies 200 frames with RPK of 30c making earnings of \$1bn
airline 2 flies 480 frames with RPK of 15c making earnings of \$1bn

Both have \$7bn of debt
Both have good global reach
Both are key members of global alliances

which one has a higher market cap?

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 04:02:17 and read 8777 times.

Thanks Mutu- I understand it's like rocket-science..
Because all major US airlines combined would have a ( theoretical ) market cap like LH ...
If there is one airline i'd like to invest today,it's Turkish Airlines or Emirates-but both are not publicly traded.

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 05:09:49 and read 8745 times.

 Quoting Beaucaire (Reply 5):Thanks Mutu- I understand it's like rocket-science.. Because all major US airlines combined would have a ( theoretical ) market cap like LH ... If there is one airline i'd like to invest today,it's Turkish Airlines or Emirates-but both are not publicly traded.

This quote is sure an utter nonsense... Lufthansa current market cap is 8 Billion EURO.

Between International Hubs of:
Frankfurt, Munich, Zurich & Geneva

Lufthansa is not as big as the AirFrance/KLM group operating out of
CDG & AMS only.

Now lets look at the US carriers even though they are having a hard time financially lately.

Delta -
Hubs
JFK & ATL.
JFK is probably worth around \$2.5 Billion US - \$3 Billion US
ATL is probably worth around \$5 Billion US which is the largest hub based operation in the world.

American Airlines
JFK- Has probably lost alot of its value recently after Open Skies, But they could easily get \$1 Billion for their real estate at JFK.
MIA- Has to be worth at least \$3.5 Billion for American Airlines
DFW- Has to be worth \$2.5 Billion for American
ORD- Is \$1 Billion

Continental which is currently the most profitable operation in the United States because there debt is only \$3.7 Billion
EWR- Is worth around \$2.5 Billion - \$3 Billion as they basically run Newark International.
IAH- Is worth around \$2.5 Billion - \$3 Billion as well

This is all off the top of my head, If someone else can calculate NWA, United & US please go right ahead.

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 05:32:45 and read 8721 times.

Don't forget goodwill, that can add a lot to a company's true worth.

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 05:59:36 and read 8700 times.

 Quoting JFK787NYC (Reply 2):Well Obviously Delta's market cap at 2.4 Billion is not close to what it is actually worth. It depends on breakup value taken into calculation.

There are two types of values: (1) book values; and (2) transaction values. Book values depend on what crazy numbers are thrown in, but all have to recognize Net Worth (Assets less Liabilities). Net Worth is the investor's key. That is bottom line what they own.

Transactional wise there are only two values that count in any transaction: (1) the value the company puts on itself; and (2) the value the market puts on the company.

Topic: RE: True Value Of Airlines - How To Calculate?
Posted 2008-05-03 07:02:19 and read 8664 times.

 Quoting B752OS (Reply 7):Don't forget goodwill, that can add a lot to a company's true worth.

If you look at this Forbes - ranking of the world's most respected companies (worldwide poll-not just airlines..) - the first airline to be mentioned on rank 36 is LH...
And then there is a long list of no airline-related companies-until other airline-companies appear.
The bottom line is ,that it's the customers who value a company by being loyal to an airline and accepting fares and services that allow a great yield. What good are terminals that are underused or made redundant because of reduced business operations calling for the closure of a hub ?

Sure -there are real-estate values listed in the books- but they can be valued quite arbitrarily. What is worth more - an operation like Lufthansa Technics with worldwide joint-ventures and first class considerations but maybe few listed buildings owned- or a terminal building ??
Not many the major US airlines export their technical capabilities or service-infrastructures like SR-Technics or LH-technics do - why is that ?
(I know about Delta Tech-Ops being active internationally.)

Topic: RE: True Value Of Airlines - How To Calculate?