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Northwest,Delta slash their value before plan
AFP
Published in The Saudi Gazette on 24 - 04 - 2008

US carriers Delta Air Lines and Northwest Airlines announced Wednesday a combined $10.5 billion in losses as soaring fuel prices eroded their value ahead of their plan to create the world's biggest airline.
Delta, the third-largest US airline, posted a net loss of $6.4 billion in the first quarter, after taking a charge of $6.1 billion to account for its reduced value.
Northwest, the number five US carrier, reported a net loss of $4.1 billion, on a depreciation of its value of $3.9 billion.
Both airlines explained that they had written down their value to account for a jump in jet fuel costs that is weighing on their profit outlooks and to calculate a fair value ahead of their planned merger, announced on April 14.
But even without these major accounting revisions, the two airlines were mired in the red during the first quarter, due to a more than 50 percent rise in their jet fuel bills: excluding special items, Delta had a net loss of $274 million and Northwest $191 million.
The two partners face a delicate economic balancing act as Delta prepares to acquire Northwest in a takeover that would create the largest airline in the United States and worldwide.
Both carriers have swung again into losses about a year after they left the bankruptcy protection that had offered them a chance to clean up their balance sheets instead of going broke.
At the time of their emergence from Chapter 11 protection, the companies were valued on a stable fuel price.
“Upon emergence from bankruptcy, Delta recorded a $12 billion goodwill balance under fresh start accounting. The valuation of goodwill was predicated on the company's market value at that point of $9.4 billion. A key assumption in that valuation was the price of fuel of $70 per barrel,” the company said.
Crude oil prices almost hit $120 a barrel Tuesday, while Delta's market capitalization now stands at less than $2billion.
The $6.1 billion depreciation is “based on the difference between Delta's book equity and an updated stand-alone valuation reflecting current fuel and economic assumptions, prepared in connection with Delta's recently announced merger with Northwest,” said Delta, which is a partner with European carrier Air France-KLM.
In this volatile context, the two companies underscored the advantages they hope to draw from their merger, notably in cost savings and additional annual revenue of $1 billion.
“The new carrier will offer superior route diversity across the US, Latin America, Europe and Asia and will be better able to overcome the industry's boom-and-bust cycles,” said Doug Steenland, Northwest Airlines's president and chief executive.
The companies hope to conclude their merger by year-end, after six to eight months of review by regulators. __


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