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dstblj52
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Re: Could Delta be on the hook with Gol?

Sat Aug 29, 2020 9:18 am

Sokes wrote:
RyanairGuru wrote:
Not really an accounting truck. Frequent flyer programs make a LOT of money from selling "miles" to third parties, most notably credit card companies but to a lessor extent other partners such as car hire and hotel loyalty programs that see value associating with the airline loyalty program.

When you earn United miles with your American Express card or Hertz 5 Star Rewards that's because United sold those miles to Amex or Hertz.

Are American Express card users not flying Southwest?
As a credit card user I would consider it a waste of money.

So the frequent flyer program has money from American Express as asset, but the sold miles plus miles frequent fliers get from flying as liability.

Is American Express paying so much that not only their bought miles, but even miles from flying get paid with it?
How can such a program be valuable?

united's average mile was sold at 2 cents and redeemed for roughly 1 cent minus breakage (lots of miles go unused) these programs are so valuable an airlines credit line of last resort is often selling miles to the credit card partner (amex doing this was a large reason why delta was able to avoid being bought by usair in 2005). But essentially the chain work like this interchange on most cards like this in the us is 2.25-2.5 cents on the dollar when you use your credit card at a merchant, most of that is then essentially given to the millage program for the mile you collect, plus some of the annual fee for the bags and other benefits with the credit card company making spread on interchange some of the annual fee and the interest when people inevitably have a balance on the card.
 
usflyer msp
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Re: Could Delta be on the hook with Gol?

Sat Aug 29, 2020 12:27 pm

lightsaber wrote:
usflyer msp wrote:
lightsaber wrote:
The loan company is owed $300 million.
If Delta must pay, they own GoL's FF program that, per my previous link, was hocked for a $225 million loan. So it is no longer colateral.
DL will not give up a more valuable asset for free. They will probably have to sell it, but they will do so in a way to maximize value for Delta.

This is real money. Small hopes and whims go away. Compared to the end game, a couple million in attorney fees is nothing. This is not the time to play nice.
This involves legal issues that could wreck havoc on more than GoL. Contract law is very important. When mucked with, there are permanent and long term consequences within a whole nation. The 2nd credit bubble is over. I think after two in a row, lenders might learn their lessons and that will really impact airlines.

Lightsaber


For clarification, DL will not own Smiles if GOL defaults - they will own GOL's share which is 53%. They still have to work with the other shareholders. However, if GOL does not own any part of Smiles, they are likely to just start their own competing FF program which would make Smiles effectively worthless. GOL has the upper hand in this, Delta will probably end up selling GOL's shares back to GOL for a very discounted price.

You are correct, DL would only own GoL's portion.
It would be easier and cheaper for GoL to layoff everyone at the airline, return everything (including aircraft), and restart as a new airline than it would be to startup a competing loyalty program. You should read a bit about AA's and UA's programs in the link below.

https://www.forbes.com/sites/advisor/20 ... 34f1c514e9

So I disagree on GoL having the upper hand. GoL would not be wise to start a competing FF program. At that point, I'm fairly certain they would cease to be a going concern because leaving the prior FF program means losing your credit card processor, defaulting on obligations to that processor, and destroying the loyalty of your most valuable customers and losing out on the cash the FF program holds onto. Since other airlines make a 20% margin on the FF program above owning it (miles are bought at 20% above cost, see the link above), suddenly having a new program would make any buyer very hesitant to purchase miles and what credit card company would process for an airline that did that? Delta will lose money, but we'll have to see what is negotiated.

Lightsaber

PS
Recall GoL fired their auditor. They cannot be a bull in the china shop and survive this. A compromise will happen. How much in favor of one party or the other is the question.
https://simpleflying.com/gol-fires-auditors/


This is where I disagree.

Since Smiles is a separate company, it has the obligations to the banks and other buyers of miles not GOL. I'm sure there is some sort of agreement for GOL to make seats available for Smiles members but if GOL decided against renewing that agreement, the Smiles organization would be effectively worthless. GOL having an ownership stake in Smiles is important as it keeps GOL bound to the program; what hedge fund is going to invest in a program that cannot assure a long-term relationship with its airline?

I think you overestimate the difficulty of starting a new FFP. It has been done many times with little difficulty, most recently with CM and UX. Your customers will follow you to the new program. GOL has tried to purchase the remainder of Smiles 2x in the last three years so it must see some value in having it's FFP in-house.

https://www.reuters.com/article/us-braz ... SKBN1YD18R

https://www.reuters.com/article/gol-lin ... SL2N1WV07U
 
moa999
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Re: Could Delta be on the hook with Gol?

Sat Aug 29, 2020 12:47 pm

I think what Air Canada did with Aeroplan shows there are ways. They talked up separating, crashed the value of the program, then bought it back cheap.

Anyhow Smiles share price is improving, back to about US$330m - so $170m for the stake.
https://www.bloomberg.com/quote/SMLS3:BZ
 
TropicalSky
Posts: 533
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Re: Could Delta be on the hook with Gol?

Tue Sep 01, 2020 7:42 pm

Appears GOL has paid the loan & DAL is in the clear
https://wtvbam.com/news/articles/2020/s ... g/1054073/
 
MIflyer12
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Re: Could Delta be on the hook with Gol?

Tue Sep 01, 2020 10:16 pm

It will be interesting to see if anything is disclosed in DL SEC filings. Purely speculative on my part: 'We gave them $50 million so we wouldn't have to backstop the $300 million loan.'
 
Boof02671
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Re: Could Delta be on the hook with Gol?

Tue Sep 01, 2020 10:28 pm

MIflyer12 wrote:
It will be interesting to see if anything is disclosed in DL SEC filings. Purely speculative on my part: 'We gave them $50 million so we wouldn't have to backstop the $300 million loan.'

Per the CARES Act that is prohibited
 
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lightsaber
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Re: Could Delta be on the hook with Gol?

Tue Sep 01, 2020 11:13 pm

TropicalSky wrote:
Appears GOL has paid the loan & DAL is in the clear
https://wtvbam.com/news/articles/2020/s ... g/1054073/

Wow. I fully admit I personally expected more drama.
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
jbs2886
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Re: Could Delta be on the hook with Gol?

Tue Sep 01, 2020 11:23 pm

lightsaber wrote:
TropicalSky wrote:
Appears GOL has paid the loan & DAL is in the clear
https://wtvbam.com/news/articles/2020/s ... g/1054073/

Wow. I fully admit I personally expected more drama.


Will be interested to see what happened. I actually didn't expect drama because GOL needed to avoid DL taking control of Smiles - probably one of the strongest assets GOL (any airline) has.
 
TYWoolman
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Re: Could Delta be on the hook with Gol?

Wed Sep 02, 2020 12:04 am

jbs2886 wrote:
lightsaber wrote:
TropicalSky wrote:
Appears GOL has paid the loan & DAL is in the clear
https://wtvbam.com/news/articles/2020/s ... g/1054073/

Wow. I fully admit I personally expected more drama.


Will be interested to see what happened. I actually didn't expect drama because GOL needed to avoid DL taking control of Smiles - probably one of the strongest assets GOL (any airline) has.


Delta would have certainly taken Smiles over. As harsh as it sounds, Delta would not have lost 300 million without rights to Smiles even if it meant GOL's certain demise and Smiles becoming worthless. Delta would have nothing further to lose other than a certain 300 million lose. Gol (with their new partner, American and the Brazilian gov't) saw repaying this as an investment in themselves/independence.
 
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lightsaber
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Re: Could Delta be on the hook with Gol?

Wed Sep 02, 2020 2:29 am

TYWoolman wrote:
jbs2886 wrote:
lightsaber wrote:
Wow. I fully admit I personally expected more drama.


Will be interested to see what happened. I actually didn't expect drama because GOL needed to avoid DL taking control of Smiles - probably one of the strongest assets GOL (any airline) has.


Delta would have certainly taken Smiles over. As harsh as it sounds, Delta would not have lost 300 million without rights to Smiles even if it meant GOL's certain demise and Smiles becoming worthless. Delta would have nothing further to lose other than a certain 300 million lose. Gol (with their new partner, American and the Brazilian gov't) saw repaying this as an investment in themselves/independence.

I was arguing above that DL would insist on GoL's share of smiles. What I didn't expect is that GoL wouldn't play a game. Instead, DL is off the hook.

This is the best outcome for GoL/AA and for Delta.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
winGl3t
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Re: Could Delta be on the hook with Gol?

Wed Sep 02, 2020 2:47 am

TYWoolman wrote:
Gol (with their new partner, American and the Brazilian gov't) saw repaying this as an investment in themselves/independence.


AA is only a codeshare partner of GOL. Neither AA or the Brazilian government owns GOL shares as you imply
 
TYWoolman
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Re: Could Delta be on the hook with Gol?

Wed Sep 02, 2020 8:14 am

winGl3t wrote:
TYWoolman wrote:
Gol (with their new partner, American and the Brazilian gov't) saw repaying this as an investment in themselves/independence.


AA is only a codeshare partner of GOL. Neither AA or the Brazilian government owns GOL shares as you imply

Correct. But I was implying the status quo.
 
TYWoolman
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Re: Could Delta be on the hook with Gol?

Wed Sep 02, 2020 8:20 am

lightsaber wrote:
TYWoolman wrote:
jbs2886 wrote:

Will be interested to see what happened. I actually didn't expect drama because GOL needed to avoid DL taking control of Smiles - probably one of the strongest assets GOL (any airline) has.


Delta would have certainly taken Smiles over. As harsh as it sounds, Delta would not have lost 300 million without rights to Smiles even if it meant GOL's certain demise and Smiles becoming worthless. Delta would have nothing further to lose other than a certain 300 million lose. Gol (with their new partner, American and the Brazilian gov't) saw repaying this as an investment in themselves/independence.

I was arguing above that DL would insist on GoL's share of smiles. What I didn't expect is that GoL wouldn't play a game. Instead, DL is off the hook.

This is the best outcome for GoL/AA and for Delta.

Lightsaber


Yes, best outcome for all parties. Seems like Gol and Delta have a cordial relationship. But I think Delta played its cards right during the divorce since Delta knew it might get stuck with the mortgage on the house, figuratively speaking.
 
jbs2886
Posts: 2573
Joined: Wed Apr 01, 2015 9:07 pm

Re: Could Delta be on the hook with Gol?

Wed Sep 02, 2020 5:31 pm

TYWoolman wrote:
jbs2886 wrote:
lightsaber wrote:
Wow. I fully admit I personally expected more drama.


Will be interested to see what happened. I actually didn't expect drama because GOL needed to avoid DL taking control of Smiles - probably one of the strongest assets GOL (any airline) has.


Delta would have certainly taken Smiles over. As harsh as it sounds, Delta would not have lost 300 million without rights to Smiles even if it meant GOL's certain demise and Smiles becoming worthless. Delta would have nothing further to lose other than a certain 300 million lose. Gol (with their new partner, American and the Brazilian gov't) saw repaying this as an investment in themselves/independence.


I was also arguing that DL would have taken over Smiles...which is why GOL wanted to avoid that outcome.
 
slcdeltarumd11
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Re: Update GoL pays debt Delta could have been on the hook with Gol?

Wed Sep 02, 2020 8:10 pm

Delta really acted like nothing could ever go sour again. The airline industry can't act like this. They should have known better. History shows how volatile an industry is, their have been alot of ups and downs for airlines. This ain't the first and it won't be the last.
 
MIflyer12
Posts: 8801
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Re: Update GoL pays debt Delta could have been on the hook with Gol?

Thu Sep 03, 2020 6:42 pm

slcdeltarumd11 wrote:
Delta really acted like nothing could ever go sour again. The airline industry can't act like this. They should have known better. History shows how volatile an industry is, their have been alot of ups and downs for airlines. This ain't the first and it won't be the last.


Think about all the times people here in the last two years have made the argument that alliances (*A, SkyTeam, oneworld) are old-school, and that equity relationships are the new thing. Really - count them. A $300 million loan guarantee is no bigger risk than a $300 million equity investment. You can lose $300 million.

There's just so much you can do to de-risk an airline. Fuel hedging is very expensive and isn't a long-term solution. DL paid off a lot of debt. DL pumped a lot of extra money (above current PBGC funding requirements) into the frozen defined benefit plan. If you can't handle risk, you shouldn't work for, nor own shares in, a big airline.
 
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LAXintl
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Re: Update GoL pays debt Delta could have been on the hook with Gol?

Thu Sep 03, 2020 7:00 pm

Bit more from Reuters.

Delta Air Lines (DAL.N) helped its former Brazilian partner Gol Linhas Aereas Inteligentes (GOLL4.SA) to refinance a $300 million loan that was due on Monday and which the U.S. carrier had guaranteed, according to an internal memo seen by Reuters. Delta confirmed the memo was sent to employees on Wednesday but declined to provide additional details.

“As part of the refinancing, Delta worked with Gol to replace the existing loan guarantee with a smaller loan secured with incremental collateral,” Delta said in the memo.It said the deal reduces its own financial exposure and provides additional security, while providing Gol more time to address its obligations during the coronavirus pandemic, which has decimated air travel across the globe.


Delta helped Brazil's Gol refinance $300 million loan, memo shows
https://www.reuters.com/article/us-delt ... SKBN25T2E7

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From the desert to the sea, to all of Southern California
 
MIflyer12
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Re: Update GoL pays debt Delta could have been on the hook with Gol?

Wed Oct 14, 2020 12:04 am

Details of that 'help' came out in the earnings call today. DL lent Gol $250 million so Gol didn't default and make DL eat the loan guarantee.

Hey, good morning, Tracy, this is Paul. So we had a – we didn’t actually have a loan to GOL. We had a $300 million guarantee. And what we did was restructured that guarantee and lent them $250 million. And we have got amortization payments that are required, and they are current with that loan.
 
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lightsaber
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Re: Update GoL pays debt Delta could have been on the hook with Gol?

Thu Oct 15, 2020 6:01 pm

MIflyer12 wrote:
Details of that 'help' came out in the earnings call today. DL lent Gol $250 million so Gol didn't default and make DL eat the loan guarantee.

Hey, good morning, Tracy, this is Paul. So we had a – we didn’t actually have a loan to GOL. We had a $300 million guarantee. And what we did was restructured that guarantee and lent them $250 million. And we have got amortization payments that are required, and they are current with that loan.

Smart move by DL. So not completely free of the obligation, but restructured with less, but not zero risk.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.

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