Global Airlines Industry - Raymond and Leo British Airways - Billy Delta Airlines - Trevor Singapore...

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Global AirlinesGlobal Airlines

Industry - Raymond and LeoIndustry - Raymond and Leo

British Airways - BillyBritish Airways - Billy

Delta Airlines - TrevorDelta Airlines - Trevor

Singapore Airlines - HermanSingapore Airlines - Herman

Presentation AgendaPresentation Agenda

• Airline Industry OverviewAirline Industry Overview• State of the IndustryState of the Industry• Traffic and EconomicsTraffic and Economics• Regional SummariesRegional Summaries• Analysis of Analysis of

British AirwaysBritish AirwaysDelta AirlinesDelta AirlinesSingapore AirlinesSingapore Airlines

Airline Industry OverviewAirline Industry Overview

• Economy grows, travel growsEconomy grows, travel grows• Current short-term cycle is severeCurrent short-term cycle is severe

RPKs negative growth RPKs negative growth SARS virus SARS virus

• Long-term forecast remains healthyLong-term forecast remains healthyEconomies will grow 3.2% annuallyEconomies will grow 3.2% annuallyAir travel will be 5.1%Air travel will be 5.1%

• Industry deregulation stimulates air travelIndustry deregulation stimulates air travelNew routes and more frequenciesNew routes and more frequencies

• Economic and traffic growth rates vary by Economic and traffic growth rates vary by region region

State of IndustryState of Industry

Air Traffic Cycles Air Traffic Cycles

Long-term TrendLong-term Trend

Air Travel CyclesAir Travel Cycles

• Annual negative world traffic growthAnnual negative world traffic growth– In 1991 and in 2001-2002In 1991 and in 2001-2002

Air Travel Cycles Cont’…Air Travel Cycles Cont’…

• Long-term trends remain healthyLong-term trends remain healthy

• Drivers for long-term air travel Drivers for long-term air travel growthgrowth

Economic growthEconomic growth

Globalization of tradeGlobalization of trade

Airline network service improvementsAirline network service improvements

Declining faresDeclining fares

Deregulation and liberalizationDeregulation and liberalization

Air Travel Cycles Cont’…Air Travel Cycles Cont’…

• In short term, air travel is more In short term, air travel is more volatilevolatile

Consumer confidenceConsumer confidence

Business profitsBusiness profits

Depressed incomeDepressed income

High-technology stock market “bubble”High-technology stock market “bubble”

September 11September 11

Outbreak of SARSOutbreak of SARS

Long-term TrendLong-term Trend

Long-term Trend Cont’…Long-term Trend Cont’…

• Keys:Keys:Forecast shows 5% fewer world RPKs Forecast shows 5% fewer world RPKs (Revenue per kilos) at the end of 20 (Revenue per kilos) at the end of 20 years than without this unusual short-years than without this unusual short-term cycleterm cycle

Yet, air travel growth will continue the Yet, air travel growth will continue the pace at 5.1% annually pace at 5.1% annually

Traffic and EconomicsTraffic and Economics

Economic and Traffic Economic and Traffic ForecastForecast

• World GDP is forecast to grow by World GDP is forecast to grow by 3.2% over the next 20 years3.2% over the next 20 years

• Mature economies, GDP growth will Mature economies, GDP growth will average between 2~3%average between 2~3%

• Emerging economies, GDP growth Emerging economies, GDP growth may average over 4% may average over 4%

Forecast Cont’…Forecast Cont’…

Regional SummariesRegional Summaries

European Airline IndustryEuropean Airline Industry

CompaniesCompanies

• Company in focus: British AirwaysCompany in focus: British Airways

– Others:Others:•Air FranceAir France

•KLMKLM

•LufthansaLufthansa

•Virgin AtlanticVirgin Atlantic

Source: Air Transport Association

Industry Highlights – Industry Highlights – 2002/032002/03

• PassengersPassengers– 13.8 millions reduction13.8 millions reduction

• Breakeven Load FactorBreakeven Load Factor– 69.4%; compared to a 69.2% load factor69.4%; compared to a 69.2% load factor

• ProfitProfit– USD$0.87 billions lossUSD$0.87 billions loss

Factors influencing the Factors influencing the industryindustry

• SARS phenomenonSARS phenomenon

• Iraqi WarIraqi War

• Post 9/11 recovery phrasePost 9/11 recovery phrase

• External ShocksExternal Shocks– Currency AppreciationCurrency Appreciation– Security & InsuranceSecurity & Insurance

Source: Association of European Airlines

CompetitionCompetition

• ExternalExternal– The US Airlines in the North Atlantic marketThe US Airlines in the North Atlantic market

• InternalInternal– Substantially increased of no-frills Substantially increased of no-frills

competition in Europecompetition in Europe•Ryanair, Easyjet, Go, bmibaby, Virgin Exp, etcRyanair, Easyjet, Go, bmibaby, Virgin Exp, etc

• Consolidation & AlliancesConsolidation & Alliances– Star, Oneworld, KLM/Northwest, SkyTeamStar, Oneworld, KLM/Northwest, SkyTeam

Regulatory EnvironmentRegulatory Environment

• Deregulation is a global trendDeregulation is a global trend– First stage of liberalization in European First stage of liberalization in European

AirlinesAirlines

• European governments wants:European governments wants:– Low faresLow faresConsequenceConsequence– Increased demandIncreased demand

• Increased demand for infrastructure growthIncreased demand for infrastructure growth

TrendsTrends

• Slow recoverySlow recovery

• Mature economies with low growth Mature economies with low growth ratesrates

• Continuation of liberalizationContinuation of liberalization

• Growing international networksGrowing international networks

• Rise of “No-Frills” carriersRise of “No-Frills” carriers

Source: Association of European Airlines

N. American Airline N. American Airline IndustryIndustry

CompaniesCompanies

• Company in focus: Delta AirlinesCompany in focus: Delta Airlines

– Others:Others:•United AirlinesUnited Airlines

•American AirlinesAmerican Airlines

•Southwest AirlinesSouthwest Airlines

•Northwest AirlinesNorthwest Airlines

Industry Highlights – Industry Highlights – 2002/032002/03

• PassengersPassengers– 17.4 millions reduction17.4 millions reduction

• Breakeven Load FactorBreakeven Load Factor– Increased from 76.7% to 81.4%; Increased from 76.7% to 81.4%;

compared to 72.1% load factorcompared to 72.1% load factor

• Profits (Loss)Profits (Loss)– USD$12.1 billions lossUSD$12.1 billions loss

Factors influencing the Factors influencing the industryindustry

• Post 9/11 recovery/syndromePost 9/11 recovery/syndrome– Customer avoidance of air travelCustomer avoidance of air travel

• Government tax & Security policiesGovernment tax & Security policies

• InsuranceInsurance

• Escalating fuel pricesEscalating fuel prices

• Economic downturnEconomic downturn

• Iraq War and SARS phenomenonIraq War and SARS phenomenon

CompetitionCompetition

• 85% of the passengers have more 85% of the passengers have more than 2 or more carriersthan 2 or more carriers

• Growth of hub-and-spokeGrowth of hub-and-spoke– Increased competition in small marketsIncreased competition in small markets

• AlliancesAlliances•StarStar

•SkyTeamSkyTeam

•OneWorldOneWorld

Regulatory EnvironmentRegulatory Environment

• DeregulationsDeregulations– Mature liberalizationMature liberalization

• Post 9/11 Financial EffectPost 9/11 Financial Effect– Increase financial burden for airlinesIncrease financial burden for airlines– Additional insurance costsAdditional insurance costs

• Increased tax burdenIncreased tax burden

TrendsTrends

• Slowly recoveringSlowly recovering

• Mature economies with low growth Mature economies with low growth ratesrates

• Low faresLow fares

• Cost-cutting strategiesCost-cutting strategies

• Efficient airline networksEfficient airline networks

Asian Airline IndustryAsian Airline Industry

Northeast AsiaNortheast Asia

• Annual GDP growth is forecast at 2.1%Annual GDP growth is forecast at 2.1%

• This low rate is driven by JapanThis low rate is driven by Japan

• Korea will grow at a faster rate than Korea will grow at a faster rate than JapanJapan

• Air travel will grow above world averageAir travel will grow above world averageGlobalization and liberalizationGlobalization and liberalization

Fully deregulationFully deregulation

Air travel growth at 6.2%Air travel growth at 6.2%

Northeast Asia Cont’…Northeast Asia Cont’…

• Fragmentation will Fragmentation will continuecontinue– North America will North America will

remain popularremain popular– Europe continues to Europe continues to

growgrow

Southeast AsiaSoutheast Asia

• A mixture of countries at varying A mixture of countries at varying stages of economic growth stages of economic growth

• GDP is forecast to grow at 4.7% GDP is forecast to grow at 4.7% annually over the next 20 years annually over the next 20 years

• The region is diverseThe region is diverseEconomic and cultural interchangeEconomic and cultural interchange

Southeast Asia Cont’…Southeast Asia Cont’…

• Southeast Asia has Southeast Asia has strong cultural ties strong cultural ties with both Europe and with both Europe and North AmericaNorth America

VRF (visiting friends VRF (visiting friends and relatives)and relatives)

• Region with its natural Region with its natural resources and cultural resources and cultural attractions is forecast attractions is forecast to develop as a leisure to develop as a leisure destination for Asiadestination for Asia

Southwest AsiaSouthwest Asia

• GDP outlook is forecast to grow at GDP outlook is forecast to grow at 5.5%5.5%

• Subject to:Subject to:PrivatizationPrivatizationGlobalizationGlobalizationInfrastructureInfrastructureTourism developmentTourism development

• Overall traffic growth of the region will Overall traffic growth of the region will average 7.0%average 7.0%

Southwest Asia Cont’…Southwest Asia Cont’…

• Traffic within Traffic within Southwest Asia will Southwest Asia will average 8.7%, one of average 8.7%, one of the world’s highestthe world’s highest

• Encompasses several Encompasses several air travel marketsair travel markets

Middle class travels Middle class travels for businessfor business

PilgrimagePilgrimage

Tourists and VFRTourists and VFR

ChinaChina

• GDP forecast of 5.9% per year is the GDP forecast of 5.9% per year is the highest in the worldhighest in the world

• China is the fastest growing regionChina is the fastest growing regionAir travel expands at 7.6%Air travel expands at 7.6%

• World Trade OrganizationWorld Trade OrganizationGlobalization is a major driverGlobalization is a major driver

China Cont’…China Cont’…

• Airline industry is Airline industry is modernizingmodernizing

Airline consolidation Airline consolidation

Infrastructure Infrastructure investment investment

Network and fleet Network and fleet rationalizationrationalization

Participation in major Participation in major alliancesalliances

Airlines AnalysisAirlines Analysis

Stock Price: Stock Price: ££ 224224

£1=1.68 US Dollar£1=1.68 US Dollar(Nov 7, 2003)(Nov 7, 2003)

British AirwaysBritish Airways

BackgroundBackground• British Airways is a public limited companyBritish Airways is a public limited company

• BA, is the leading airline in EuropeBA, is the leading airline in Europe

• One of the biggest in the world One of the biggest in the world

• It manages almost 330 planes, 550 destinations It manages almost 330 planes, 550 destinations in 133 countriesin 133 countries

• BA has holdings in other airlines, such as the BA has holdings in other airlines, such as the Australian, Quantas, and the Spanish Iberia.Australian, Quantas, and the Spanish Iberia.

• Major destinations are Europe, America, Africa, Major destinations are Europe, America, Africa, Australia, South Pacific and Middle EastAustralia, South Pacific and Middle East

• StrategiesStrategies– Low-cost strategyLow-cost strategy

•£650 m in£650 m in cost saving by March 2003 cost saving by March 2003

•Reduced manpower by 4446 peopleReduced manpower by 4446 people– Corporate MissionCorporate Mission

•Low fare in UK domestic marketLow fare in UK domestic market

•Greater use of e-technology for customers, Greater use of e-technology for customers, staff and agentsstaff and agents

– Focus on business class passengersFocus on business class passengers

• Main CompetitorsMain Competitors– Europe MarketEurope Market

•Lufthansa and Air France are dominating the Lufthansa and Air France are dominating the marketmarket

– North America MarketNorth America Market•United Airlines & Delta are dominating the United Airlines & Delta are dominating the

marketmarket

• AllianceAlliance– Oneworld allianceOneworld alliance

•8 airline members:8 airline members:– British Airways, Aer Lignus, American British Airways, Aer Lignus, American

Airlines, Cathay Pacific, Finnair, lberia, Airlines, Cathay Pacific, Finnair, lberia, LanChile and Qantas.LanChile and Qantas.

SWOT AnalysisSWOT Analysis

• StrengthsStrengths– Strong brand nameStrong brand name– Good reputationGood reputation– Reduce net debtReduce net debt

• WeaknessesWeaknesses– Reduce boeing aircraftsReduce boeing aircrafts– Routes reducedRoutes reduced– Reduce service and Reduce service and

flightsflights– Increase insurance costIncrease insurance cost– Increase security costIncrease security cost– Downturn in passenger Downturn in passenger

demanddemand– cutting flights to the US cutting flights to the US

and the Middle Eastand the Middle East

• OpportunitiesOpportunities– ‘‘Open skies’ Open skies’

between US and UKbetween US and UK– Predict growth in Predict growth in

Europe marketEurope market

• ThreatsThreats– Economic weaknessEconomic weakness– SARSSARS– Middle East Middle East

developmentsdevelopments– Price competition Price competition

with other airlines with other airlines in Europein Europe

Financial RatioFinancial Ratio

2003 2002ROA 0.0253 0.01ROI 0.00708 -0.0128ROE 0.0317 -0.0643P/E 15.45 -17.35P to BV 0.0455 0.104

Financial DataFinancial Data

• Total Revenue=$12,147 Total Revenue=$12,147 by 7.8% by 7.8%• Total Expense=$7616 Total Expense=$7616 by 10.21 by 10.21• Net Income=$72 Net Income=$72 by 2.39 by 2.39• Net asset=$3,592 Net asset=$3,592 by 3% by 3%• Earnings per share=6.7Earnings per share=6.7• Operating margin=3.8% Operating margin=3.8% by 5.1 pts by 5.1 pts• Net debt/total capital ratio=60.7% Net debt/total capital ratio=60.7%

by 5.3 ptsby 5.3 pts

Operating DataOperating Data

• RPK= RPK= ££100,112 100,112 by 5.8% by 5.8%

• ASK= ASK= ££139,132 139,132 by 0.9% by 0.9%

• Passenger Load Factor=71.9 Passenger Load Factor=71.9 by 1.5% by 1.5%

• RTK= RTK= ££14,213 14,213 by 2.9% by 2.9%

• ATK= ATK= ££21,328 21,328 by 6.7% by 6.7%

• Overall Load Factor=66.6 Overall Load Factor=66.6 by 4% by 4%

• Passengers Carried(000)=38,019 Passengers Carried(000)=38,019 by 5% by 5%

• Tonnes of Cargo Carried(000)=764 Tonnes of Cargo Carried(000)=764 by 1.2% by 1.2%

Stock ValuationStock Valuation

1 Year Price Chat1 Year Price Chat1year price range: 1year price range: ££85.00 - 85.00 - ££215.75215.75

Today’s stock price: Today’s stock price: ££224224

Last Trade Prev Cls Volume Div Date7 Nov · 224.00 p 213.25 26,714,080 N/A

Day's Range Bid Ask Open Avg Vol Ex-Div214.00 - 225.50 221 224.25 214 14,566,425 N/A52-wk Range EPS (ttm) P/E Mkt Cap Div/Shr Yield

85.00 - 215.75 6.7 31.83 2.425B 0 N/A

Change+10.75 (+5.04%)

Passenger 85.00%Maintenance 8.00%Freight and mail 6.00%Non-scheduled 1.00%

Sales per activity

Data as of 31/03/2003

Geographical analysis of group turnover and operating profit/(loss)£ million 2003 2002 2001 2000 1999TurnoverEurope 2,838 3,208 3,388 3,400 3,409The Americas 2,763 2,863 3,450 3,253 3,272Africa,Middle East and Indiansub-continent 1,201 1,262 1,304 1,220 1,133Far East and Australasia 886 1,007 1,136 1,067 1,078

7,688 8,340 9,278 8,940 8,892Operational profit/(loss)Europe -117 -244 -172 -310 -166The Americas 223 144 470 308 451Africa Middle East and Indiansub-continent 168 91 92 62 124FarEast and Australasia 21 -101 -10 24 33

295 -110 380 84 442

United Kingdom 47.00%

Europe 64.00%Asia / Pacific 7.00%Americas 19.00%Rest of the World 10.00%

Geographic areas

Data as of 31/03/2003

Sales per geographic Core Market

Balance SheetBalance Sheet

• Total Asset=12900Total Asset=12900

• Current Asset=2725Current Asset=2725

• Total Liabilities=10626Total Liabilities=10626

• Current Liabilities=2904Current Liabilities=2904

• Total Shareholder Equity=2274Total Shareholder Equity=2274

Balance Sheet2003 2002

Shareholder's funds £2058 £2016Total debt and others 10842 11646Total £12900 £13662

Total assets £12900 £13662

Income StatementIncome Statement

Year 1999 2000 2001 2002 2003Revenues* 8,892 8,940 9,278 8,340 7,688Expenses 8,686 8,961 9,164 8,482 7,616Net Profit* 206 -21 114 -142 72* in million(s) of Pound Sterling (EPS in Pence)

Revenue CompositionRevenue Composition

Revenue

8%Scheduledservices-passenger

Scheduledservices-freightand mail

Non-scheduledservices

Other revenue

Cost StructureCost Structure

Cost Structure

3%11%8%8%

10% 9%

Employee costs

Eepreciation and amorisation

Aircrah operating lease costs

Fuel and oil costs

Engineering and other aircraftcosts

Landing fees and en route charges

Other operating costs

Selling costs

Accommodation, groundequipment costs and currencydifferences

Profits Over 5 YearsProfits Over 5 Years

Net Profit*

1999 2000 2001 2002 2003

Net Profit*

Earnings Per Share Over 5 Earnings Per Share Over 5 YearsYears

Year 2003 2002 2001 2000 1999Earnings per share 6.7 -13.2 10.6 -2 19.5

Earnings per share

2003 2002 2001 2000 1999

Cash Flow StatementCash Flow Statement

• Cash and Cash EquivalentsCash and Cash Equivalents ( Net cash inflow for capital expenditure and financial ( Net cash inflow for capital expenditure and financial investment investment

+ Net cash inflow/(outflow) for acquisitions and disposals+ Net cash inflow/(outflow) for acquisitions and disposals

= Cash used in financing)= Cash used in financing)

Cash Flow Statement2003 2002

Net cash provided by operatiing activities £ 1185 £ 866Net cash used in investing activities -249 -327Net cash (used in)/ provieded by financing activities 279 75Net Cash inflow/(outflow) £ 158 £ (4)

Cash and cash equivalents 1215 614

British AirwaysBritish Airways• Fleet ValuationFleet Valuation

– Avg Fleet age(yrs): 7.5Avg Fleet age(yrs): 7.5– Avg Life (yrs): 25Avg Life (yrs): 25– Depreciation Method: Straight-LineDepreciation Method: Straight-Line– Avg Salvage Value: 0Avg Salvage Value: 0

Type Qty Price Initial ValueDep'n Current ValueConcorde 5 230.5 1152.5 345.75 806.75Boeing 747-400 56 184.5 10332 3099.6 7232.4Boeing 777 43 151.5 6514.5 1954.35 4560.15Boeing 767-300 21 113.8 2389.8 716.94 1672.86Boeing 757-200 13 73.5 955.5 286.65 668.85Airbus A319 33 46 1518 455.4 1062.6Aorbis A320 24 51 1224 367.2 856.8Boeing 737-300 21 41.5 871.5 261.45 610.05Boeing 737-400 27 48 1296 388.8 907.2Boeing 737-500 10 49 490 147 343Turboprops 28 42 1176 352.8 823.2Embraer Rj145 28 43.5 1218 365.4 852.6Avro Rj100 16 41.5 664 199.2 464.8British Aerospace 146 5 37.5 187.5 56.25 131.25Total MV Owned 20992.51

Net MVA vs Mkt CapNet MVA vs Mkt Cap

Est fleet value = 21US BEst fleet value = 21US B

Current assets =2.725 BCurrent assets =2.725 B

Total debt =5.149 BTotal debt =5.149 B

Net MVA =18.57US B vs Mkt Net MVA =18.57US B vs Mkt cap=cap=2.425B2.425B

Therefore, the assets are……undervaluedTherefore, the assets are……undervalued

RecommendationRecommendation

Good NewsGood News

• Improved net Improved net incomeincome

• Increased cash Increased cash inflowinflow

• Reduced net debtReduced net debt

• Decreased Decreased operating costsoperating costs

Recommendation:Recommendation:

S-T: buyS-T: buy

Bad NewsBad News

• Decreased in Decreased in revenuerevenue

• Downturn in Downturn in passenger demandpassenger demand

• Assets undervaluedAssets undervalued

L-T: holdL-T: hold

Delta AirlinesDelta AirlinesU.S. CarrierU.S. Carrier

Nov. 5 / 03

Stock Price: $12.89

Background InformationBackground Information

• Founded – 1924Founded – 1924

• Headquarters: Atlanta, GeorgiaHeadquarters: Atlanta, Georgia

• CEO: Leo F. MullinCEO: Leo F. Mullin

• Employees: 70,000+Employees: 70,000+

• Daily Flights + Partners: 6,130Daily Flights + Partners: 6,130

• Destinations: 453 cities in 82 Destinations: 453 cities in 82 countriescountries

StrategiesStrategies

• Build adequate liquidityBuild adequate liquidity

• Significant reduction in costsSignificant reduction in costs

• Become more competitive in the “low-Become more competitive in the “low-fare” sectorfare” sector– Song, a highly competitive, wholly owned Song, a highly competitive, wholly owned

subsidiarysubsidiary

Competitors / AlliancesCompetitors / Alliances

CompetitorsCompetitors

• American AirlinesAmerican Airlines

• United AirlinesUnited Airlines

• International International Airline companies Airline companies (minimal)(minimal)

AlliancesAlliances

• Atlantic Southeast Atlantic Southeast AirlinesAirlines

• Comair, Inc.Comair, Inc.

• Other Delta Other Delta connection carriersconnection carriers

• Skyteam AlliancesSkyteam Alliances

• Codeshare partnersCodeshare partners

SWOTSWOT

StrengthsStrengths

• Well positioned hub Well positioned hub networksnetworks

• Partners & AlliancesPartners & Alliances

• Good Employee Good Employee RelationsRelations

• Technological Technological InnovationInnovation

WeaknessesWeaknesses

• Lower fairs due to Lower fairs due to high competitionhigh competition

• Less demand due to Less demand due to 911 911

• Higher ExpenseHigher Expense

Map of Hub NetworkMap of Hub Network

OpportunitiesOpportunities

• Boston airport Boston airport terminal projectterminal project

• More international More international flights and flights and coveragecoverage

ThreatsThreats

• Low-fare airline Low-fare airline companiescompanies

• Demand for air Demand for air travel does not travel does not increaseincrease

Balance Sheet - AssetsBalance Sheet - AssetsPeriod EndingPeriod Ending Dec 31, 2002Dec 31, 2002 Dec 31, 2001Dec 31, 2001

Cash & Cash Cash & Cash EquivalentsEquivalents

$1,969$1,969 $2,210$2,210

Total Current AssetsTotal Current Assets $3,902$3,902 $3,567$3,567

Property & EquipmentProperty & Equipment $16,524$16,524 $16,097$16,097

Other AssetsOther Assets $4,294$4,294 $3,941$3,941

Total AssetsTotal Assets $24,720$24,720 $23,605$23,605

Balance Sheet - LiabilitiesBalance Sheet - LiabilitiesPeriod EndingPeriod Ending Dec 31, 2002Dec 31, 2002 Dec 31, 2001Dec 31, 2001

Total Current LiabilitiesTotal Current Liabilities $6,455$6,455 $6,403$6,403

Non-current LiabilitiesNon-current Liabilities $16,530$16,530 $12,349$12,349

Total LiabilitiesTotal Liabilities $22,985$22,985 $18,752$18,752

Common StockCommon Stock $271$271 $271$271

Retained EarningsRetained Earnings $1,639$1,639 $2,930$2,930

Accumulated income Accumulated income (loss)(loss)

($1,562)($1,562) $25$25

Total EquityTotal Equity $893$893 $3,769$3,769

Fleet / Net MV AssetsFleet / Net MV AssetsAircraft TypeAircraft Type OwnedOwned Capital LeaseCapital Lease Operating LeaseOperating Lease TotalTotal Average AgeAverage Age

B-727-200B-727-200 1818 -- 33 2121 23.523.5

B-737-200B-737-200 -- 4242 1010 5252 17.817.8

B-737-300B-737-300 -- -- 2626 2626 16.116.1

B-737-800B-737-800 7171 -- -- 7171 2.22.2

B-757-200B-757-200 7777 33 4141 121121 11.311.3

B-767-200B-767-200 1515 -- -- 1515 19.619.6

B-767-300B-767-300 44 -- 2424 2828 12.912.9

B-767-300ERB-767-300ER 5151 -- 88 5959 6.96.9

B-767-400B-767-400 2121 -- -- 2121 1.81.8

B-777-200B-777-200 88 -- -- 88 2.92.9

MD-11MD-11 88 -- 77 1515 8.98.9

MD-88MD-88 6363 -- 5757 120120 12.512.5

MD-90MD-90 1616 -- -- 1616 7.17.1

EMB-120EMB-120 2929 -- -- 2929 11.811.8

ATR-72ATR-72 44 -- 1515 1919 8.58.5

CRJ-100/200CRJ-100/200 7373 -- 122122 195195 3.73.7

CRJ-700CRJ-700 1515 -- -- 1515 0.30.3

TotalTotal 473473 4545 313313 831831 9.09.0

NMV Asset EvaluationNMV Asset Evaluation

Total Market Value of Owned Fleet (in millions)Total Market Value of Owned Fleet (in millions) $14186 $14186

Less: Total LT DebtLess: Total LT Debt 9576 9576

Add: Current AssetsAdd: Current Assets 3902 3902

Total NMV of Assets (Not including investments)Total NMV of Assets (Not including investments) $8512 $8512

Delta’s market capitalization is sitting at 1.65 billion, which is less than total NMV of assets which sits at 8.5 billion. This shows that Delta’s equity is undervalued.

Income Statement - Income Statement - RevenueRevenuePeriod EndingPeriod Ending Dec 31, 2002Dec 31, 2002 Dec 31, 2001Dec 31, 2001

PassengerPassenger $12,321$12,321 $12,964$12,964

CargoCargo $458$458 $506$506

OtherOther $526$526 $409$409

Total Operating Total Operating IncomeIncome

$13,305$13,305 $13,879$13,879

Revenue Allocation (2002)Revenue Allocation (2002)

Passenger

Income Statement - Income Statement - ExpenseExpensePeriod EndingPeriod Ending Dec 31, 2002Dec 31, 2002 Dec 31, 2001Dec 31, 2001

SalariesSalaries $6,165$6,165 $6,124$6,124

Aircraft FuelAircraft Fuel $1,683$1,683 $1,817$1,817

DepreciationDepreciation $1,148$1,148 $1,283$1,283

Contracted ServicesContracted Services $1,003$1,003 $1,016$1,016

Other ExpensesOther Expenses $3,306$3,306 $3,639$3,639

Total Operating Total Operating ExpenseExpense

$13,305$13,305 $13,879$13,879

Expense Allocation (2002)Expense Allocation (2002)

SalariesFuelDepreciationContract ServiceOther

Earnings TrendEarnings Trend1803

13181637

-1602 -1309

1998 1999 2000 2001 2002

10671196

-1230 -1287

1998 1999 2000 2001 2002

Operating Income

Net Income

EPS TrendEPS Trend

6.34 7.2 7.05

-9.99 -6.69

1998 1999 2000 2001 2002

Cash Flow StatementCash Flow Statement

Net Cash from OperationsNet Cash from Operations $285$285

Less: Net Cash from InvestmentsLess: Net Cash from Investments (1109)(1109)

Add: Net Cash from FinancingAdd: Net Cash from Financing 583 583

Net Cash Inflow / OutflowNet Cash Inflow / Outflow $1977$1977

Major Changes

• Operations – Flight equipment less spending (2321) (922)

• Investing – Boston Airport Terminal (485) 58

• Financing – Short Term Obligations 701 (1144)

RatiosRatiosYear 2002Year 2002 DeltaDelta AmericanAmerican UnitedUnited

Valuation RatiosValuation Ratios

P/E RatioP/E Ratio N/AN/A N/AN/A N/AN/A

P/BV RatioP/BV Ratio 2.372.37 N/AN/A N/AN/A

Internal LiquidityInternal Liquidity

Current Ratio (MRQ)Current Ratio (MRQ) 0.7980.798 0.7120.712 0.7830.783

Management Management EffectivenessEffectiveness

ROA (TTM)ROA (TTM) -3.28%-3.28% -5.49%-5.49% -16.26%-16.26%

ROE (TTM)ROE (TTM) -66.72%-66.72% -351.26%-351.26% N/AN/A

Profitability RatiosProfitability Ratios

Profit Margin (TTM)Profit Margin (TTM) -6.12%-6.12% -9.60%-9.60% -27.85%-27.85%

Operating Margin Operating Margin (TTM)(TTM)

-8.75%-8.75% -7.56%-7.56% -21.02%-21.02%

Operating DataOperating Data

YearYear 20022002 20012001

Revenue Passenger Miles Revenue Passenger Miles (mill)(mill)

102,029102,029 101,717101,717

Available Seat Miles (mill)Available Seat Miles (mill) 141,719141,719 147,837147,837

Passenger Load FactorPassenger Load Factor 72.0%72.0% 68.8%68.8%

Breakeven Passenger Load Breakeven Passenger Load FactorFactor

79.0%79.0% 77.3%77.3%

Cargo Ton Miles (mill)Cargo Ton Miles (mill) 1,4051,405 1,5831,583

Fuel Gallons Consumed (mill)Fuel Gallons Consumed (mill) 2,5142,514 2,6492,649

Number of Aircraft in FleetNumber of Aircraft in Fleet 831831 814814

Average Age of Aircraft Average Age of Aircraft (years)(years)

9.09.0 9.19.1

EmployeesEmployees 75,10075,100 76,30076,300

Last TradeLast Trade 12.8912.89

Trade TimeTrade Time Nov 5 / 03Nov 5 / 03

Change Change -0.06 (0.46%)-0.06 (0.46%)

Prev ClosePrev Close 12.9512.95

OpenOpen 12.9512.95

BidBid N/AN/A

AskAsk N/AN/A

1y Target Est1y Target Est 19.4019.40

Day’s RangeDay’s Range 12.68 – 13.0412.68 – 13.04

52wk Range52wk Range 6.56 – 16.056.56 – 16.05

VolumeVolume 2,421,3002,421,300

Avg Vol (3m)Avg Vol (3m) 2,505,1812,505,181

Market CapMarket Cap 1.59B1.59B

P/E (TTM)P/E (TTM) N/AN/A

EPS (TTM)EPS (TTM) -6.741-6.741

Div & YieldDiv & Yield N/A (N/A)N/A (N/A)

Delta Air Lines (NYST: DAL)

Stock Price ChartStock Price Chart

• Undervalued according to NMV assetsUndervalued according to NMV assets

• High market shareHigh market share

• No dividends & negative earningsNo dividends & negative earnings

• Very volatile industryVery volatile industry

Hold – Moderate Buy

Today’s stock price: S$12.50Today’s stock price: S$12.50

Exchange rate: S$1 to Exchange rate: S$1 to US$0.57US$0.57

BackgroundBackground

• Found in Oct. 1972Found in Oct. 1972– Separated from Malaysian AirwaysSeparated from Malaysian Airways

• Started from 10 aircrafts flying 22 Started from 10 aircrafts flying 22 citiescities

• Right now, spans over 90 cities Right now, spans over 90 cities globally with about 95 aircraftsglobally with about 95 aircrafts

• Singapore government owned 57% of Singapore government owned 57% of sharesshares

Background con’tBackground con’t

• Ranking in 2002Ranking in 2002– World 4World 4thth largest airline in RPK largest airline in RPK– World 2World 2ndnd largest airline in freight carried largest airline in freight carried

AlliancesAlliances

• Equity partnerEquity partner– acquired 49% shares of Virgin Atlantic acquired 49% shares of Virgin Atlantic

Airways in March 2000Airways in March 2000

• Star AlliancesStar Alliances– Joined in April 2000, become 11Joined in April 2000, become 11thth

members with such as Air Canada, United members with such as Air Canada, United Airline, Lufthansa, Thai Airline, ANA Airline, Lufthansa, Thai Airline, ANA Airways. Airways.

CompetitorsCompetitors

• Cathay PacificCathay Pacific

• Japan Airlines Japan Airlines

• Malaysian AirlinesMalaysian Airlines

• Strengths:Strengths:– Low debt (debt to equity traditionally Low debt (debt to equity traditionally

<0.1)<0.1)– Encourage employees’ motivationEncourage employees’ motivation

•Profit-sharing programProfit-sharing program

– Young aircraft , average age of 5 years Young aircraft , average age of 5 years oldold

– Excellent in-flight servicesExcellent in-flight services•e.g.: free drinks, complimentary headsets…e.g.: free drinks, complimentary headsets…

SWOT Analysis SWOT Analysis con’tcon’t

• Weakness:Weakness:– Relied on long haul flightRelied on long haul flight– Located in SARS outbreak areaLocated in SARS outbreak area

• Opportunities:Opportunities:– Work with partners Work with partners – Demand increaseDemand increase– Competitors’ struggleCompetitors’ struggle

• Threats:Threats:– Global economic weaknessGlobal economic weakness– SARS comeback againSARS comeback again– Fuel cost increase Fuel cost increase – terrorismterrorism

StrategiesStrategies

• Cost cuttingCost cutting– No-pay leaveNo-pay leave– Wage cutsWage cuts– Reduction in staffReduction in staff– Less flying allowance paidLess flying allowance paid– Postpone profit-sharing bonusPostpone profit-sharing bonus

• Assets sellingAssets selling– sold 5 Pratt and Whitney engines finance sold 5 Pratt and Whitney engines finance

corp.corp.

Strategies Strategies con’tcon’t

• New route developingNew route developing– BangaloreBangalore– ShenzhenShenzhen– L.A.L.A.

• Re-Fleeting plansRe-Fleeting plans– Combination of Air-Bus and BoeingCombination of Air-Bus and Boeing

• Price cutting, promotion, flights Price cutting, promotion, flights addingadding

Balance sheetBalance sheet

Balance Sheet(in S$million)

30-Sep-03 30-Jun-03 31-Mar-02 30-Sep-02Shareholders' funds $10,614.0 $10,397.7 $10,708.8 $10,480.5Total debt + others 8,798.7 8,380.5 8,475.2 8,387.0Total $19,412.7 $18,778.2 $19,184.0 $18,867.5

Total assets $19,412.7 $18,778.2 $19,184.0 $18,867.5

Earning per shareEarning per share

EPS over 5 years

020406080

100120140

FY 98-99 FY99-00 FY 00-01 FY 01-02 FY 02-03

Financial year

Operating profitOperating profitOperating profit over 5yrs

1,000.0

1,200.0

1,400.0

1,600.0

FY 98-99 FY99-00 FY 00-01 FY 01-02 FY 02-03

Financial year

Cost structureCost structureCost structure in Q2/03

17%11%

3%4% fuel

aircraft depreciation and rental

aircraft maintenance andoverhaul handling

landing and parking

inflight meal and otherpassenger costscommunication and IT

others

Income statementIncome statement

Income statement Income statement con’tcon’t

Cash flow statementCash flow statement

(in S$million) Q2/03 Q2/02 H1/03 H1/02Net cash provided by operating activities 456.8$ 459.0$ 168.9$ 1,178.3$ Net cash used in investing activities (218.1) (219.2) (365.4) (581.7) Net cash (used in)/provided by financing activities (139.4) (123.9) 163.2 (379.9) Net cash inflow/(outflow) 99.3$ 115.9$ (33.3)$ 216.7$

Cash and cash equivalents at end period $730.3 $1,241.0 $730.3 $1,241.0

Operating dataOperating dataPassanger Q2/03Passengers carried (000's) 3,644.0 Revenue passanger-km (million) 17,772.8 Available seat-km (million) 22,379.8 Passenger load factor (%) 79.4

CargoCargo and mail carried (M kg) 264.7Cargo load (M tonne-km) 1699.6

Operating data Operating data con’tcon’t

RatiosRatios

As at30SEP03

As at30JUN03

ROA 0.02 -0.02ROE 0.03 -0.03ROI 0.54 -0.47Net debt to equity 0.10 0.12Price to book equity 1.44 1.46

Stock valuationStock valuation

• Ticker: SIAL.SITicker: SIAL.SI

• Trade in Singapore Stock ExchangeTrade in Singapore Stock Exchange

• Shares issued (as at 30SEP03): 1.22BShares issued (as at 30SEP03): 1.22B

Stock valuation Stock valuation con’tcon’t

Last Trade Prev Cls Open Volume

7 Nov ?12.50 12.5 12.5 1,089,000

Day's Range Bid Ask P/E Mkt Cap Avg Vol

12.50 - 12.70 12.4 12.5 14.3 N/A N/A

52-wk Range Bid ize Ask ize P/S Div/Shr Div Date

8.25 - 12.90 N/A N/A N/A 0.15 11-Aug

1y Target st EPS?ttm) EPS st PEG Yield Ex-Div

N/A 0.874 0 N/A 1.2 29-Jul

Change

0.00 (0.00%)

SIA LTD (SES:SIAL.SI)

5-year price chart5-year price chart

1-year price chart1-year price chart

• Moderate BuyModerate Buy– Good managementGood management– Recover so fastRecover so fast– Low debtLow debt– Volatile stock, but upward trendVolatile stock, but upward trend

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