Delta's sale of subsidiaries Compass and Mesaba could kick-start anticipated consolidation in the US regional sector
Delta has spurred long-anticipated consolidation in the US regional airline industry through the sale of its two wholly-owned subsidiaries Compass and Mesaba for $82.5 million.
The US major helped usher in the first phase of significant consolidation in the regional sector in 2005 when it sold Atlantic Southeast Airlines to SkyWest. Pinnacle later acquired Colgan Airways to diversify its base of major partners to include Continental, US Airways and United. Now Pinnacle has moved again through its $62 million purchase of Mesaba, which was folded into Delta's portfolio of wholly-owned regional carriers through the 2008 merger of Delta and Northwest.
Through the deal Pinnacle is enlarging its Bombardier CRJ900 operation from 16 to 57 aircraft, while securing a 12-year contract covering that fleet. Mesaba's 19 CRJ200s are being folded into an existing agreement Pinnacle has with Delta covering 145 aircraft.
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The $20.5 million acquisition of Compass by privately-held Trans States Holdings helps the latter achieve diversity by adding Delta to its portfolio of partners after forging a 10-year deal with Delta for Compass to continue operating its fleet of 36 Embraer 175s. Through its two subsidiaries, Trans States operates 37 Embraer ERJ-145s for US Airways and United, and 25 Bombardier CRJ700s for United.
For Delta, the sales furthers the major's goal of strengthening its balance sheet. Recently carrier chief Richard Anderson explained to employees: "When we look at what is core to making Delta a successful enterprise, it is clear owning those regional carriers and having that capital tied up on our balance sheet was something that was not necessary."
The sale of three regional subsidiaries during the last five years leaves Comair as Delta's only remaining wholly-owned regional entity. CRT Capital Group airline analyst Michael Derchin says if the majors decide to sell regional carriers, then they need to monetise those airlines to maximise shareholder value. Using that logic, he explains, now might not be the optimal time for Delta to sell Comair, but on the surface its seems Delta garnered a favourable price for Compass and Mesaba.
Derchin says American Airlines could be applying the same philosophy to a possible sell-off of its American Eagle subsidiary. American first expressed an interest in spinning off Eagle in late 2007, but froze those plans as the economic downturn took hold.
Recently commenting on Dan Garton's appointment as American Eagle chief executive, American chief Gerard Arpey said Garton was uniquely qualified to lead Eagle as American "begins a strategic evaluation of the airline [Eagle]". Garton's employment contract with American references a June 2012 target deadline for a possible divestiture of Eagle, and Derchin says, like Delta, American could be holding off to secure a more favourable selling price. But by declaring a specific timeframe, Derchin says American has "clearly started the process" of spinning off Eagle.
Source: Airline Business
