Delta's AmEx Deal Ups Prospect of Berkshire Buy, Stifel Says

(Bloomberg) -- A renewal of Delta Air Lines and American Express’ 23-year partnership for an additional 11 years increases the likelihood of Berkshire Hathaway buying the airline, Stifel analyst Joseph DeNardi said.

“While we had suspected that Delta could announce an extension with AmEx at some point this year, this is earlier than we had thought and the improvement in revenue and economics are significantly better than we were expecting,” DeNardi wrote in a note to clients, adding that the airline is now on track to be one of world’s most valuable “marketing company.”

If the partnership grows as planned, the analyst expects Delta to receive cash proceeds of $7 billion to $8 billion from selling miles, which would convert into about $3.5 billion to $4 billion in EBIT at the current margin.

Berkshire’s stake in Delta has often fueled speculation that the airline might get bought out. Last month, Berkshire Chairman Warren Buffett said his investment in Delta had risen above his comfort threshold by mistake. Berkshire is the top holder in both Delta, with a stake of over 10 percent, and American Express, with an 18 percent stake.

Delta also announced preliminary first-quarter results on Tuesday, triggering a rally in the group. Delta shares rose as much as 7 percent, touching the highest since Dec. 13.

©2019 Bloomberg L.P.