Originally Posted by
Sink r8
True, but they're already financing billions. So the only reasons (that I can think of) you would finance these (and thus repay some other debt) would be that a) you can't get good terms on these two, b) you want to reduce your current profits.
The notion that this is for balance sheet rebuilding doesn't make sense to me. Sure, you're not adding to debt, but you're also depleting your cash by an equivalent amount.
My guess is that Delta wants to show just enough profit to satisfy investors, but not so much they have to share with labor right away. We'll be "profitable" as soon as we sign contracts while we're "not profitable".
Capital expenditures do not affect the profit and loss statement, in just the same manner that borrowing money does not affect the profit and loss. You can't "hide" profits by buying aircraft or paying down debt just like you cannot "create" profits by borrowing money. It is easy to mix up a cash flow and debt analysis with a profit and loss statement. Buying aircraft and paying debt are all cash flow items and not profit and loss.
Profit and loss basically deals with how much it costs to fly airplanes around, and how much you collect from your customers by flying airplanes around. Interest expense and lease costs are included in profit and loss. If you reduce your debt, you reduce your future interest payments and you increase your future profit.
This quarter Delta created a mountain of cash. They paid into pensions, early, they paid cash for 6 jets, they reduced debt and they added $600 million to their cash balance. This is good. Reducing the debt will only reduce our further interest payments and increase future profits. Remember that some of this mountain of cash came from future payments for summer flying, so these results will not be the same for the rest of the year.
You can't hide profits by paying cash for things, you can only reduce your debt and that is a good thing.