With a year-to-date performance in the middle of the airline pack, Delta’s (DAL) shares have lagged over longer time frames. Ionosphere Capital believes, however, that because of three strategic initiatives Delta is undertaking, this relative performance understates its shares’ return potential.
We estimate that the Trainer, PA refinery purchase from ConocoPhillips in June, 2012 and net benefits of Delta’s fleet restructuring over the next several years will add around $600 million annually to Delta’s pretax earnings, or more than one-third of the 2012 consensus earnings estimate base. Finally, an acquisition of the 49% stake in UK carrier Virgin Atlantic currently owned by Singapore Airlines, for $360 million, will substantially improve Delta’s access to the world’s richest business travel airport, London-Heathrow.
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