I'm curious what Delta's long term international strategy will be. They've built much of their international strategy based on the ability to heavily influence partners with equity stakes, sometimes near-controlling stakes.
KE: Not 49% by any means, but Delta's stake was required in conjunction with the controlling family's stake to fight off activist investors, so in a way, a VERY influential stake: https://asia.nikkei.com/Opinion/Seoul-m ... amily-feud
It's certainly not any surprise that KE will need some amount of money to survive: https://skift.com/2020/03/09/korean-air ... -business/
Korean already has a massive debt load and a loan from the Korean government would help but an equity injection seems like it would be more helpful at this point. How would the government balance an equity investment that could take away control from the current controlling Chaebol and Delta tethering its side to that Chaebol? The current government seems to have a stated interest in doing just that.
VS: 49% stake by Delta but SRB owns the 51% so Delta doesn't have effective control. Hasn't made money in a few years. And it's now begging for a bailout. https://news.sky.com/story/coronavirus- ... t-11966892
AM: 51% "non-controlling" stake by Delta per Delta's 10-K (I thought it was 49% but Delta says otherwise in their 10-K); Lost money the last few years: https://www.prnewswire.com/news-release ... 03335.html
AF/KL: 9% equity stake in AF/KL The news about them is all over the map but: Recapitalization & nationalization seem to come up a lot among other topics.
LA: 20% stake in LATAM. It's not controlling, but the stake is very helpful for the Cueto family to maintain a large plurality equity control. http://www.latamairlinesgroup.net/ownership-structure
And, given the heavy Brazilian presence/reliance of LATAM, you have to wonder how a government bailout would even work: Would Brazil help bail out a largely-Chilean company (the old Amaro Brazilian ownership appears to be down to 2%), if necessary? Does Chile have the ability to bail out such a large company, if necessary? And all this in the middle of realigning their network to be with Delta. Not to say Delta/LATAM couldn't be great together in the future, but it's certainly a very rough time to be transitioning partners.
VA: No equity position by Delta, but a JV with VA. VA doesn't seem likely to survive the crisis based on latest headlines: https://www.afr.com/politics/federal/vi ... 401-p54fv6
All carriers across the globe are struggling massively and these comments aren't meant to diminish that or say that only those local carriers mentioned are hurting or will go bankrupt. Delta, however, has built much of its international strategy on the influence that equity stakes provide them and no other US carrier aside from United (small stake in Azul and an accidental ownership of AV due to a loan gone awry) has any similar current equity positions. Which prompts three questions:
1. How will foreign governments look at bailouts that stand to financially benefit a foreign carrier, Delta? Will that influence them not to provide a bailout, at all? Will it sway them toward equity stakes that diminish Delta's ownership/benefit?
2. Just to look at two carriers, AM and VS, two carriers that went into the red under Delta's influence (both were certainly in the red, at times, before that, as well) during the best of flying times. If local governments chose equity stakes that diminish Delta's control, would that cause local carriers to change their strategies/reliance on Delta?
3. I can't imagine they possibly could right now, but would Delta inject cash into their flailing partners? If, for instance, the UK government didn't help VS? Delta would stand to lose access to a lot of Heathrow slots if VS went under. You'd have to imagine those slots would go to debt holders first (or Heathrow? Beats me how those slots work), not an equity holder like Delta. How could Delta inject equity if they took the bailout money from the US government. Using their own cash to help foreign airlines while receiving a cash injection from the US government would seem, unusual, at best.
I bring it up since so much of Delta's international strategy has been built around the ability to sway the boardroom and, at least, some of that equity could be diluted in the current environment or go away entirely in the event of liquidation.