Tuesday August 16, 2005
Delta Air Lines announced yesterday that it entered into a definitive agreement to sell its wholly owned Regional airline subsidiary Atlantic Southeast Airlines to SkyWest for $425 million in cash.As part of the deal, ASA will continue to operate in the Delta Connection network under a new 15-year agreement. The payout includes $350 million payable at closing representing $330 million of the purchase price and $20 million relating to certain aircraft financing deposits.
An additional $125 million representing $95 million of the purchase price and $30 million relating to certain aircraft deposits is payable "upon the earlier assumption by Delta of the ASA and SkyWest Airlines Delta Connection agreements should Delta file for reorganization under Chapter 11, or four years after the closing of the transaction. Conversely, SkyWest shall be entitled to retain $125 million if Delta were to reject its Delta Connection agreement with either ASA or SkyWest Airlines in a Chapter 11 proceeding prior to the fourth anniversary of the closing of this transaction."
Proceeds will be used for general corporate purposes and to pay down $100 million of debt under Delta's loan agreement with GE Commercial Finance and other lenders. The deal is set to close next month.
The sale, which had been expected (ATWOnline, Aug. 12) will provide Delta with much-needed cash, but as the carrier made clear in its 10-Q filing released late yesterday, by no means is it out of the woods. According to the 10-Q, it had $1.7 billion in cash and cash equivalents at the end of June. However, it estimated that "aggregate obligations due in the six months ended Dec. 31and thereafter "will be approximately $2 billion."
Furthermore, it will have to accept a hold-back on Visa/MasterCard receivables from future ticket sales that will total "at least $750 million" under a proposal from its existing credit card processor. A proposal from a third party to provide the same service after its current agreement expires will result in a similar amount being withheld by Oct. 31, the carrier estimated.
In its 10-Q, Delta said it expects "to record a substantial net loss for the six months ending Dec. 31, 2005," notes that "cash flow from operations will not be sufficient to meet our liquidity needs for that period" and warns "that our cash and cash equivalents and short-term investments will decline substantially during the remainder of 2005 even if we complete the [ASA] sale."
If liquidity falls "to an unacceptably low level or we conclude that a competitive cost structure cannot be achieved through an out-of-court restructuring, we will need to seek to restructure under Chapter 11 of the US Bankruptcy Code," the carrier stated.
by Perry Flint
Source: ATW-Online
Delta Air Lines announced yesterday that it entered into a definitive agreement to sell its wholly owned Regional airline subsidiary Atlantic Southeast Airlines to SkyWest for $425 million in cash.As part of the deal, ASA will continue to operate in the Delta Connection network under a new 15-year agreement. The payout includes $350 million payable at closing representing $330 million of the purchase price and $20 million relating to certain aircraft financing deposits.
An additional $125 million representing $95 million of the purchase price and $30 million relating to certain aircraft deposits is payable "upon the earlier assumption by Delta of the ASA and SkyWest Airlines Delta Connection agreements should Delta file for reorganization under Chapter 11, or four years after the closing of the transaction. Conversely, SkyWest shall be entitled to retain $125 million if Delta were to reject its Delta Connection agreement with either ASA or SkyWest Airlines in a Chapter 11 proceeding prior to the fourth anniversary of the closing of this transaction."
Proceeds will be used for general corporate purposes and to pay down $100 million of debt under Delta's loan agreement with GE Commercial Finance and other lenders. The deal is set to close next month.
The sale, which had been expected (ATWOnline, Aug. 12) will provide Delta with much-needed cash, but as the carrier made clear in its 10-Q filing released late yesterday, by no means is it out of the woods. According to the 10-Q, it had $1.7 billion in cash and cash equivalents at the end of June. However, it estimated that "aggregate obligations due in the six months ended Dec. 31and thereafter "will be approximately $2 billion."
Furthermore, it will have to accept a hold-back on Visa/MasterCard receivables from future ticket sales that will total "at least $750 million" under a proposal from its existing credit card processor. A proposal from a third party to provide the same service after its current agreement expires will result in a similar amount being withheld by Oct. 31, the carrier estimated.
In its 10-Q, Delta said it expects "to record a substantial net loss for the six months ending Dec. 31, 2005," notes that "cash flow from operations will not be sufficient to meet our liquidity needs for that period" and warns "that our cash and cash equivalents and short-term investments will decline substantially during the remainder of 2005 even if we complete the [ASA] sale."
If liquidity falls "to an unacceptably low level or we conclude that a competitive cost structure cannot be achieved through an out-of-court restructuring, we will need to seek to restructure under Chapter 11 of the US Bankruptcy Code," the carrier stated.
by Perry Flint
Source: ATW-Online