notEnuf

We have borrowed and intent to contributed $2B to the pension fund. This was done by offering debt (bonds). That money has to be invested in some way to generate income or at least hold value vs. inflation.

We have also contributed DAL stock to the pension fund. Roughly 15 million shares in two separate new stock issuances, one in 2016 and one last month. The 2016 new shares were about 7.8 million and the last one was 7.5 million new shares. These shares will earn dividends and appreciate (hopefully) to add value to the pension.

Once the funds from the debt issuance are in the pension thay can be invested in any investment. Once the equity shares are placed in the fund they will generate income. These two different types of funding can be used in a variety of ways. Stock for the Aeromexico minority stake (49%) are held in the pension thereby not impacting cash flow. The DAL stock could be used in a stock swap transaction to acquire and strengthen partner relationships.

My suspicion is that by moving the purchasing power to the pension they accomplish two goals. First the pension liability is reduced and second they have created a pool of funds to further the virtual merger business plan. My guess is that they will be interested in purchasing shares of partner airlines as the corporation pursues its global industrial expansion. This plan fits well with our new GBH requirement. We have a floor but they have the ability to move between theaters where different partners operate. This gives them flexibility to craft production agreements. It is important to note we have a minimum but no growth ratio requirement. Those deals will be done separately. If the VA production balance deal is any indication we will not start at a snapshot level of flying with a growth ratio, there will be a sizeable buffer to move flying to and from the minority stake subsidiary.

That's called a whipsaw.

The 49% minority stake is key for several reasons. First we are still technically a minority stake holder which complies with ownership limits while relieving us of regulatory requirements of majority stake holders. Also it gives us practical control because no other single entity has a real path to majority ownership. With publically traded companies it is impractical to buy all of the remaining 51%. With a privately held company there is not likely to be just a single additional share holder. Most companies award stock to leadership and or ESOP plans that give employees some ownership. As a half owner we are entitled to board seats that will set dividends and profit distributions. More than likely there is a real desire by the other board members of the companies we own to follow the Delta JV plan because they would also reap the rewards.

The capacity would likely be relatively restrained to provide pricing power. No or limited growth means we fight for it via contract costs. Whipsaw. Then add the addition of the brand assignment clause in our new contract and that can be used to put the widget on our subsidiaries. With our concurrence because we have no fifth freedom rights and wouldn't operate that flying anyway. Gradually over time we are competing for flying and losing control of the brand flying. In time we are only a small portion of the global Delta brand flying with little ability to regain international operations and no requirement to grow proportionally.

This is the global industrial business model. Ford motor company is a good example.