Delta Air Lines and Its Valuation

Executive Summary

I made Delta Air Lines’ and its valuation a main focus this semester. After receiving feedback on the first executive summary, I understood the true time commitment this project required. Looking back, my group chose Delta for the wrong reasons and we should have valued a company from a different industry. High levels of debt are synonymous with most airlines, which put us at a disadvantage for later sections in the project. The group knew airlines are a capital intensive business, but were not prepared for how large their debt obligations truly are. Downward trends in oil prices presented Delta as an attractive company to value. The reality was Delta has not effectively hedged against fuel prices in recent years, making our valuation process more complicated. Delta is working to grow its international footprint and reorganize their domestic fleet. I have always seen Delta airplanes at international hubs, so to learn international growth is a main focus was something new to my knowledge.

A valuation of Delta was not achieved without countless individual and team struggles. The group did not have any experience with bankruptcy and it’s affects on a company’s financial statements. This required a year-over-year analysis on how Deltas’ Chapter 11 restructuring in 2005 affected it financials through 2014, and in turn its valuation. Predicting the future of volatile commodities like oil involves many macroeconomic factors. The group endured many hours of research to learn these factors, but still struggled to confidently foresee where prices will go in the future. I personally was challenged by forecasting financial statements as a percentage of sales. I consistently forgot that we were forecasting COGS, A/R, Inventory etc. as a portion of sales, and previously never knew this was a viable approach to forecasting the value of a company.

Outside of choosing another company, I would change our group dynamic. To often the group looked for a time when everyone could meet, which we learned is tough between three college seniors. We found ourselves in a time crunch for our second deliverable, which was avoidable had we taken it upon ourselves to work on the project individually more often. Early in the semester when we managed to sit down collectively as a group, we still lacked efficient productivity. We needed more effective meetings, which we improved by implementing a group agenda and daily goals. Poor team planning came back to hurt us during the financial statements forecast unit; we didn’t realize the magnitude of the financial model or how many times we would go back to make changes.