Investments

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Investments

INVESTMENTS

Long-Term Investments

We have developed strategic relationships with a number of airlines and airline services companies through equity investments and other forms of cooperation and support. Our equity investments reinforce our commitment to strategic relationships, which improve our coordination with these companies and enable our customers to seamlessly connect to more destinations while enjoying a consistent, high-quality travel experience.

Equity Method Investments

We account for our investments in Aeroméxico, Virgin Atlantic and AirCo Aviation Services, LLC ("AirCo"), the parent company of DAL Global Services, LLC ("DGS"), under the equity method of accounting. Our portion of Aeroméxico's and Virgin Atlantic's financial results are recorded in miscellaneous, net in our Condensed Consolidated Statements of Operations and Comprehensive Income ("income statement") under non-operating expense, and our share of AirCo's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business. If an equity method investment experiences a loss in fair value that is determined to be other than temporary, we will reduce our basis in the investment to fair value and record the loss in unrealized gain/(loss) on investments.

• Aeroméxico. Our non-controlling investment in Grupo Aeroméxico, the parent company of Aeroméxico, is accounted for under the equity method. Grupo Aeroméxico's corporate bylaws (as authorized by the Mexican Foreign Investment Commission) limit our voting interest to 49%. However, due to Aeroméxico's share repurchase program, our equity stake in Grupo Aeroméxico has increased to 51%. The investment is recorded at $843 million as of September 30, 2019.

• Virgin Atlantic. We have a non-controlling 49% equity stake in Virgin Atlantic Limited, the parent company of Virgin Atlantic Airways, and similar non-controlling interests in certain affiliated Virgin Atlantic companies. Our investment in these Virgin Atlantic companies is recorded at $393 million as of September 30, 2019.

• AirCo. We have a non-controlling 49% equity stake in AirCo which is recorded at $123 million as of September 30, 2019. AirCo is a subsidiary of Argenbright Holdings, LLC that provides aviation-related services, ground support equipment maintenance and security.

In the September 2019 quarter we announced our plan to enter into a strategic alliance with LATAM Airlines Group S.A. ("LATAM"). Subject to regulatory approval, specifically requirements under the Hart-Scott-Rodino Antitrust Improvement Act, we plan to commence a tender offer for the acquisition of up to 20% of the common shares of LATAM at a price per share of $16, to be funded with newly issued debt and available cash. In addition, to support the establishment of the strategic alliance, we will invest $350 million, $150 million of which was disbursed in the September 2019 quarter.

Fair Value Investments

We account for the following investments at fair value with adjustments to fair value recognized in unrealized gain/(loss) on investments within non-operating expense in our income statement. We recorded losses of $35 million and $17 million on our fair value investments during the three and nine months ended September 30, 2019, respectively. These results were driven by changes in stock prices and foreign currency fluctuations.

• Air France-KLM. We own 9% of the outstanding shares of Air France-KLM, which are recorded at $393 million as of September 30, 2019.

• GOL. We own 9% of the outstanding capital stock of GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), through ownership of its preferred shares. Our ownership stake is recorded at $256 million as of September 30, 2019.

Additionally, GOL has a $300 million five-year term loan facility with third parties maturing in 2020, which we have guaranteed. Our guaranty is secured by GOL's ownership interest in Smiles, GOL's publicly traded loyalty program. Because GOL remains in compliance with the terms of its loan facility, we have not recorded a liability on our balance sheet as of September 30, 2019.

We plan to sell our GOL ownership stake and wind down our commercial agreements with GOL to facilitate the formation of our strategic alliance with LATAM.

• China Eastern. We own a 3% equity interest in China Eastern, which is recorded at $226 million as of September 30, 2019.

• Korean. We have acquired 10% of the outstanding shares of Hanjin-KAL, the largest shareholder of Korean Air, during 2019. This investment is recorded at $134 million as of September 30, 2019.

• Alclear Holdings, LLC ("CLEAR"). We own a 7% equity interest in CLEAR.

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Republic Airways. We own a 17% equity interest in Republic Airways Holdings Inc.