Fyano773
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Delta Invests $65M In AeroMexico

Mon Jun 04, 2012 7:39 pm

This investment creates the leading airline alliance between Mexico and the United States:

http://www.marketwatch.com/story/del...sts-in-grupo-aeromexico-2012-06-04

Delta Air Lines buys four percent stake in Grupo Aeromexico

MEXICO CITY, June 4, 2012 /PRNewswire via COMTEX/ -- Grupo Aeromexico (mexico:AEROMEX.MX) today received from Delta Air Lines Inc. /quotes/zigman/463579/quotes/nls/dal DAL -11.43% US $65,000,000 as part of this carrier's investment in Mexico's flagship carrier's capital stock, thus strengthening its financial position, confirming its expansion project and creating the leading airline alliance



Consolidation of this alliance also includes the companies' joint investment in their MRO business at new facilities the carriers plan to open in Mexico in 2013. AM & DL will invest equal amounts to expand their aircraft repair business, which will also create new jobs.

Both carriers, which are leaders in their respective markets, reaffirmed their commitment to keep offering customers their best quality service.

Mod Edit: Moved the link from the quoted section as clicking the link lead to an error page.

[Edited 2012-06-04 13:01:19 by srbmod]
 
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DeltaMD90
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RE: Delta Invests $65M In AeroMexico

Mon Jun 04, 2012 8:04 pm

Makes sense, DL has gone far with their trans-Atlantic partnerships and is working on their trans-Pacific, AM is the logical choice down south.

Does anyone think DL will codeshare with AM more or even start a JV?
Ironically I have never flown a Delta MD-90 :)
 
EddieDude
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RE: Delta Invests $65M In AeroMexico

Mon Jun 04, 2012 8:38 pm

Quoting DeltaMD90 (Reply 1):
Does anyone think DL will codeshare with AM more or even start a JV?

Codeshare more, definitely. It is part of this transaction. The article states that:

This financial transaction is part of the global contract the carriers signed last year to create a unique alliance in Latin America. This is a long-term agreement that will benefit passengers through the expansion of our codeshare flights.

The carriers collectively offer 93 codeshare destinations that represent 733 daily flights in eight countries. They have also been working on improving and increasing flight schedules to respond to customers' needs in destinations such as New York, Los Angeles, Houston, Chicago and Miami, new daily service to Washington, DC from Mexico City and new flights to Atlanta coming soon. Customers at both airlines enjoy streamlined purchasing processes that allow them to book their travel through to their final destinations.


JV, nope. Mexico and the U.S. do not have an open skies agreement and it is my understanding that the only chance airlines have to receive regulatory authority to pursue an international JV is when the corresponding transborder market is open.
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odysseus9001
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 2:54 am

Out of curiosity-

1) How will things change for existing Delta TechOps sites if a new site is opened in Mexico?

2) Will the IAD-Mexico City flight and flights beyond Mexico City to points in South America be included in the code share?

Thanks.

J
 
Dalmd88
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 9:42 am

Quoting odysseus9001 (Reply 3):
1) How will things change for existing Delta TechOps sites if a new site is opened in Mexico?

We are told not at all. The plan is to move all the outsourced 757 HMV checks to Mexico. This of course could change.
 
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RWA380
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 9:55 am

Where is DL getting all the cash to invest into other carriers and oil refineries. I know they are profitable currently and have money in the bank, but with volatile fuel prices and uncertain fleet acquisition time frames for some ordered planes, how can DL be so certain they shouldn't hang onto some of this capital until things smooth out a bit? I'm really curious, I am fascinated how DL has become the largest carrier in the world and the actions they take to try and stay ahead of the rest. It is not easy getting to the top of the pile, and even harder to stay there.
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yellowtail
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 1:08 pm

is this a CM/CO style relationship development, where DL will provide expertise, make the carrier a juggernaut, then cash out, keeping the relationship?
When in doubt, hold on to your altitude. No-one has ever collided with the sky.
 
EddieDude
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 1:25 pm

Quoting RWA380 (Reply 5):
Where is DL getting all the cash to invest into other carriers and oil refineries.

Well, 65 million is not exactly a lot of money, so this should not be seen as a major, game-changing investment. I think a carrier as large as DL can easily fund this investment through cash flow without jeopardizing its liquidity. That said, if things were to go awfully wrong for DL from a liquidity point of view, they can always sell the AM shares easily, as they are publicly-traded (although they might fetch a lower price).

Quoting yellowtail (Reply 6):
is this a CM/CO style relationship development, where DL will provide expertise, make the carrier a juggernaut, then cash out, keeping the relationship?

Interesting point. The relationship will certainly seek to improve customer relations at AM, to bring them in line with DL's standards. The goal is for passengers of both carriers to expect the same in terms of elite perks, mileage, lounges, etc. no matter which carrier they are flying. The MRO component of the deal is also very important in my opinion. With respect to cashing out and keeping the relationship, I think you can expect the relationship to continue unless one of the two leaves SkyTeam behind (which I don't see happening); DL might in the future cash out if AM's share price climbs significantly (that might take a long time or just not happen at all), but I really view this acquisition by DL as a long term strategic investment. I am sure DL is very interested in having the right to nominate a director to the AM board.
Next flights: MEX-LAX AM 738, LAX-PVG DL 77L, SHA-PEK CA 789, PEK-PVG CA A332, PVG-ORD MU 77W, ORD-MEX AM 738
 
mcg
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 7:38 pm

Quoting EddieDude (Reply 7):
Well, 65 million is not exactly a lot of money,

I'd respectfully suggest that $65 million is a lot of money.
 
Dalmd88
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 7:55 pm

Quoting mcg (Reply 8):
I'd respectfully suggest that $65 million is a lot of money.

To you and me it is, but to a company the size of DL it isn't. I think DL payed out more than that last year in the employee 'Shared Reward Program'. That is a monthly bonus program for coming in at the top of the DOT rankings. Usually $75-$100 per month to each line employee.
 
mcg
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 10:40 pm

Quoting Dalmd88 (Reply 9):
Quoting mcg (Reply 8):
I'd respectfully suggest that $65 million is a lot of money.

To you and me it is, but to a company the size of DL it isn't. I think DL payed out more than that last year in the employee 'Shared Reward Program'. That is a monthly bonus program for coming in at the top of the DOT rankings. Usually $75-$100 per month to each line employee.

For the three years of 2009, 2010 and 2011DL earned about $210 million. So $65 million is almost 1 year of earnings. I'd say it's a lot of money.
 
klkla
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 10:56 pm

Quoting mcg (Reply 10):
For the three years of 2009, 2010 and 2011DL earned about $210 million. So $65 million is almost 1 year of earnings. I'd say it's a lot of money.

That's sort of misleading.

Delta earner $854,000,000 last year and $593,000,000 the year before. They had a $1..2 billion loss the year before which was due to economic problems and merger costs that are not relevant now.
 
EddieDude
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 10:57 pm

Quoting mcg (Reply 10):
or the three years of 2009, 2010 and 2011DL earned about $210 million. So $65 million is almost 1 year of earnings. I'd say it's a lot of money.

Well, DL had net income of 124 million dollars during the first quarter of 2012, and had cash and cash equivalents of 2.65 billion dollars as of December 31st, 2011, so I'd say 65 million is a small amount of money for a company their size.
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justloveplanes
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RE: Delta Invests $65M In AeroMexico

Tue Jun 05, 2012 11:14 pm

Taking advantage of UA's missteps down IAH way...
 
mcg
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RE: Delta Invests $65M In AeroMexico

Wed Jun 06, 2012 12:27 am

Quoting klkla (Reply 11):
They had a $1..2 billion loss the year before which was due to economic problems and merger costs that are not relevant now.

$1.2 billion is a large loss. I don't think you can simply assume it away.
 
compensateme
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RE: Delta Invests $65M In AeroMexico

Wed Jun 06, 2012 2:32 am

Quoting mcg (Reply 8):
I'd respectfully suggest that $65 million is a lot of money.

Perhaps DL expects to earn a profit (and perhaps lower costs elsewhere) with its investment?
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ghifty
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RE: Delta Invests $65M In AeroMexico

Wed Jun 06, 2012 3:03 am

Quoting mcg (Reply 8):
I'd respectfully suggest that $65 million is a lot of money.

Not really, Delta has nearly $43b in assets.. i.e., money they can actually spend. From a normal person's point-of-view, or when considering their net profits, $65m is a lot.. but that's not how the business world works/thinks/functions.

Edit: Well, actually it would appear Delta has an equity of about $900m.. so I suppose you could say the investment is alrge.

[Edited 2012-06-05 20:07:54]
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RWA380
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RE: Delta Invests $65M In AeroMexico

Wed Jun 06, 2012 12:46 pm

Quoting EddieDude (Reply 7):
Well, 65 million is not exactly a lot of money, so this should not be seen as a major, game-changing investment. I think a carrier as large as DL can easily fund this investment through cash flow without jeopardizing its liquidity. That said, if things were to go awfully wrong for DL from a liquidity point of view, they can always sell the AM shares easily, as they are publicly-traded (although they might fetch a lower price).
Quoting mcg (Reply 8):

I'd respectfully suggest that $65 million is a lot of money

I remember when American Express bought SkyMiles for pennies on the dollar to start it's SkyMiles Amexcard program, they paid about double this amount, and got a bazillion SkyMiles to give to members as awards. A great investment for Amex and DL at that time needed the cash. Some Amex employees had SkyMile cards for company business charges, and got their departments free flight awards to help balance their P & L for their division.
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klkla
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RE: Delta Invests $65M In AeroMexico

Wed Jun 06, 2012 8:08 pm

Quoting mcg (Reply 14):
$1.2 billion is a large loss. I don't think you can simply assume it away.

My point is that a loss three years ago is not relevant to the point of this thread. The question was whether Delta could afford to invest $65 million in AM. Delta has earned over $1.4 billion in the last two years. That is a much more accurate way to describe their current financial situation as opposed to their past financial condition.
 
mcg
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RE: Delta Invests $65M In AeroMexico

Wed Jun 06, 2012 9:52 pm

Quoting klkla (Reply 18):
Quoting mcg (Reply 14):
$1.2 billion is a large loss. I don't think you can simply assume it away.

My point is that a loss three years ago is not relevant to the point of this thread. The question was whether Delta could afford to invest $65 million in AM. Delta has earned over $1.4 billion in the last two years. That is a much more accurate way to describe their current financial situation as opposed to their past financial condition.

I didn't question whether DL can afford to invest $65 million in AM. They clearly have the $65 million to spend. My point is that $65 million is a lot of money, because it is. Comparing it to historical annual profitability is simply intended to provide some perspective and emphasize that in fact $65 million is a lot of money.