American Airlines Has Already Written Down a Quarter of Its Investment in China Southern

In 2015 Delta made a $450 million strategic investment in Shanghai-based China Eastern which has been called the most-subsidized Chinese state-backed airline.

U.S. airline executives think their counterparts at Delta are smart and know what they’re doing, so commonly copy moves made by Delta. In 2017 American Airlines made a strategic investment in China Southern.

In the second quarter American Airlines wrote down the value of its investment in China Southern airlines. In response to a question about financials, the airline told employees “Non-operating special items principally included $52 million of mark-to-market net unrealized losses primarily associated with the company’s equity investment in China Southern Airlines.” $52 million would equate to 26% of the original $200 million investment in China Southern made just two years earlier.

That’s after they introduced reciprocal frequent flyer benefits with the airline and expanded codesharing, and as they consider relocating their Beijing flights to the new farther-out Daxing airport to better connect with China Southern after the new facility comes online.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Mark to market accounting. What’s old is new again I guess. I saw Jeff Shilling of Enron is trying to start a new venture in the energy business as well (that isn’t a joke).

  2. American’s investment in China Southern was an uncharacteristically smart move in spite of the write down. It is one instance where American got the best of Delta which is stuck with China Eastern as its primary partner in China.

    From a passenger point of view China Southern is a much better airline than China Eastern. For example, months before AA and CZ announced reciprocal ff earning and burning and lounge access, I was flying first class in a CZ Platinum Suite on an A380 from Guangzhou to Beijing. It was booked with Delta miles. A three-hour ATC delay out of CAN meant being “forced” to spend three more hours in the Platinum Suite but also jeopardizing my connecting flight on AA back to the US. That flight was on a separate ticket.

    Long story short as I can, we arrived at PEK T3 about 30 minutes before scheduled departure on AA from T2. Ruh roh as Astro would say. CZ reps met me planeside, expedited me through the transfer desk, passport control and security, got me on a post security bus to T2, and escorted me to the gate. It was like a relay race and I was the baton. The gate was deserted except for some agents and security personnel. I was the last to board by a wide margin. I stowed my gear (no checked bags), sat down, and the pilots pushed. It was five minutes or so after scheduled departure! Looks on some of the others in business class were priceless.

    The amazing thing is I never requested special assistance. Someone at CZ was on the ball that day. That contrasts with the experience last month with China Eastern during Typhoon Lekima. Zero help when the delayed flight from NRT to PVG was finally cancelled. The scene at the gate was viral video material.

    It was a major coup for AA to pry CZ away from DL and Skyteam, if indeed that’s what happened. DL is getting a measure of revenge by continuing to allow booking CZ flights with StyMiles. DL charges twice the number of miles as AA to fly CZ intra Asia. That seems to account for the scarcity of CZ award availability through AA and the wide availability with DL. But I think CZ’s new hub at Daxing will be a challenge in many ways.

  3. I know of at least one airline that has declined in value more than China Southern since AA made their investment on 3/28/2017…In fact it is down 38% since then. So I guess you could argue that AAL stock would have performed even worse then it currently is if they would have bought back shares on 3/28/17 vs making their investment in China Southern!

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