Delta Airlines 2015 Annual Report Download - page 75

TableofContents
Long-Term Investments
Wehavedevelopedstrategicrelationshipswithcertainairlinesthroughequityinvestmentsandotherformsofcooperationandsupport.Thesestrategic
relationshipsareimportanttousastheyimprovecoordinationwiththeseairlinesandenableourcustomerstoseamlesslyreachmoredestinations.
• Aeroméxico.InordertoexpandoureconomicinterestinAeroméxico,weenteredintoaderivativecontractfor58.9millionsharesofAeroméxico'sparent
company.Throughtheinterestinthederivative,wewillparticipateintheincreasesanddecreasesinvalueofthesharesandrecordthosechangesinother
expenseontheConsolidatedStatementsofOperations.Atthematuritydateofthederivativecontract,wemayacquirealloraportionofthesharesorsettle
incash.Ifthederivativetermisnotextended,thederivativewillmatureinMay2016.Wehavealsoannouncedourintentiontocommenceatenderofferfor
additionalcapitalstockofGrupoAeroméxico(theparentcompanyofAeroméxico)thatwouldresultinusowningupto49%oftheoutstandingshares.
•GOL.During2015,weacquiredpreferredsharesofGOL'sparentcompanyfor$50million,increasingourownershipto9.5%ofGOL'soutstandingcapital
stock.Additionally,GOLenteredintoa$300millionfive-yeartermloanfacilitywiththirdparties,whichwehaveguaranteed.Ourguarantyisprimarily
securedbyGOL'sownershipinterestinSmiles,GOL'spublicly-tradedloyaltyprogram.AsGOLremainsincompliancewiththetermsofitsloanfacility,
wehavenotrecordedaliabilityonourConsolidatedBalanceSheetsasofDecember31,2015.Inconjunctionwiththesetransactions,weandGOLagreed
toextendourexistingcommercialagreements.
GOL’sfinancialperformanceiscloselylinkedwiththeBrazilianeconomy,whichhasrecentlyexperiencedGDPcontraction,highinflationanda
weakeningoftheBrazilianReal.ThesechallengesandGOL’srecentfinancialperformancehavecausedthefairvalueofourinvestmentinGOL’sparent
companysharestodeclineto$21millionwiththe$84millionlossrecordedinAOCIatDecember31,2015.AsGOL’sshareshavetradedbelowourcost
basisforthemajorityofthelastyear,weevaluatedwhethertheinvestmentwasother-than-temporarilyimpaired.Weconsideredtherecentconditionsand
outlookforbothGOLandthebroaderBrazilianeconomyandthenatureofourinvestmentinGOL.Asaresult,wedeterminedthattheinvestmentwasnot
impairedasGOL’smanagementisimplementingplanstomaximizeoperationalandnetworkefficiencyandcontrolcosts,whichweanticipatewillimprove
GOL’sfinancialperformance.Inaddition,similartoourinvestmentsinotherinternationalairlines,GOLisastrategicinvestmentforDelta,whichoperates
asanextensionofourglobalnetwork.WehavetheintentandabilitytoholdourinvestmentinGOLforaperiodoftimesufficienttoallowfortherecovery
ofitsmarketvalue.
•ChinaEastern.During2015,weacquiredsharesofChinaEasternfor$450million,whichprovidesuswitha3.5%stakeintheairlineasofDecember31,
2015.Inconjunctionwiththistransaction,weandChinaEasternenteredintoanewcommercialagreementtoexpandourrelationshipandbetterconnectthe
networksofthetwoairlines.Astheinvestmentagreementrestrictsoursaleortransferofthesesharesforaperiodofthreeyears,wewillaccountforthe
investmentatcostduringthisperiod.AlthoughChinaEasternsharesareactivelytradedonapublicexchange,itisnotpracticabletoestimatethefairvalue
oftheinvestmentduetotherestrictiononourabilitytosellortransfertheshares.
Wehave,however,evaluatedwhethertherecentdeclineinthevalueofChinaEastern'sshareswouldimpairourinvestment.Weconsideredtherecent
conditionsandoutlookforbothChinaEasternandthebroaderChineseeconomy,aswellasthenatureofourinvestmentinChinaEastern.Asaresult,we
determinedthattheinvestmentwasnotimpairedasthesharepricedeclineprimarilyresultsfromturmoilintheChineseequitymarketsandisnotspecificto
ChinaEastern'sfinancialperformance.Inaddition,similartoourinvestmentsinotherinternationalairlines,ChinaEasternisastrategicinvestmentfor
Delta,whichoperatesasanextensionofourglobalnetwork.WehavetheintentandabilitytoholdourinvestmentinChinaEasternforaperiodoftime
sufficienttoallowfortherecoveryofitsmarketvalue.
Equity Method Investment
VirginAtlantic.InJune2013,wepurchasedanon-controlling49%equitystakeinVirginAtlanticLimited,theparentcompanyofVirginAtlanticAirways,
for$360million.Inaddition,effectiveJanuary1,2014webegananantitrustimmunizedjointventurewithVirginAtlantic,whichallowsforjointmarketingand
sales,coordinatedpricingandrevenuemanagement,networkplanningandschedulingandothercoordinatedactivitieswithrespecttooperationsonroutesbetween
NorthAmericaandtheUnitedKingdom.Asaresultofthisrelationship,ourcustomershaveincreasedaccessandfrequenciestoLondon'sHeathrowairportfrom
pointsintheU.S.,primarilyfromourhubatNewYork'sJFKairport.
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