Delta Air Lines (DAL) Makes Offer to Invest in Japan’s Skymark Airlines

Shares of Delta Air Lines Inc. (DAL) were trading down -0.20 or -0.46 percent to $43.17 in this morning's premarket after a Japanese media report announced late yesterday that the company had offered to invest in Japan's bankrupt Skymark Airlines. Delta Air Lines stock closed at $43.37, up +0.91 or +2.14 percent in Monday's regular trading session.

Atlanta, Georgia based Delta Air Lines Inc. was founded in 1924 as Huff Daland Dusters and is one of the largest U.S. carriers.
The company has more than 5,400 daily international and domestic flights to 333 destinations in 64 countries. Delta operates 10 domestic hubs at major airports in Atlanta, Cincinnati, Detroit, two in New York City, Los Angeles, Boston, Seattle, Minneapolis and Salt Lake City. In addition, the company operates three major international hubs in Amsterdam, Paris and Tokyo.

Tokyo, Japan based Skymark Airlines is a discount airline and Japan's third largest carrier, with its headquarters at the Haneda Airport in Ota outside of Tokyo. The airline was started in 1996 upon the deregulation of the Japanese airline industry. The company is also the dominant carrier at Kobe airport and the only Japanese carrier at Ibaraki Airport north of Tokyo. In January of 2015, the company filed for bankruptcy protection after the company faced potential penalties of $2.2 billion for a cancelled jet order to Airbus.

According to two sources familiar with the matter that remained anonymous due to confidentiality issues, Delta offered to invest in the beleaguered carrier as part of a restructuring plan. Sources said that Delta would receive approximately a 20 percent stake of the company; however the terms and conditions have yet to be approved by Skymark creditors according to a report released earlier by the Nikkei Asian Review.

The newspaper reported that Delta had agreed to participate in a turnaround plan for the airline led by Skymark creditor, Intrepid Aviation which would have Delta purchase the 20 percent stake at an unspecified price. The restructuring plan is an alternative to a rival offer submitted by Skymark earlier this year that would have the company owned by its creditor banks.

If the deal goes through, Delta would be the first foreign airline to gain access to airport slots for domestic Japanese flights at the downtown Tokyo airport. These valuable slots are currently available only to Japanese carriers including Japan Airlines, ANA and Skymark. Also, Delta could build a hub at Haneda airport for connecting flights to other cities within Japan.

The deal proposed by Intrepid and Airbus Group - Skymark's biggest creditors - is one of two restructuring plans currently on the table. The other plan involves ANA Holdings making an investment in Skymark.

Delta Air Lines stock is reacting cautiously to the news, with shares trading off a fraction in this morning's premarket. Nevertheless, the potential deal would be beneficial to Delta and would open up significant opportunities for the carrier in Asia.

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Published on Jul 14, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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