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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis.

Sep 26

Written by: Jack Ciesielski
9/26/2005 7:33 PM 

Delta Air Lines' bankruptcy on September 14 has flushed out a couple of impairment charges by a couple of other players - ones that had invested in leasing aircraft to the Atlanta icon.

Your first guess might have been a bank or leasing institution - and that would have been a bad guess. The day after the bankruptcy filing, Electronic Data Systems filed a "material impairments" 8-K disclosing its $26 million writedown of leases to Delta.

Another one emerged today, this one out of the House of Mouse: Disney. Not the first lending institution that jumps to mind, their writeoff was $68 million. They also noted the possibility of an acceleration of $100 million of tax payments should Delta successfully shuck the leases during its Chapter 11 rehab session.

Nothing skanky about the two transactions at all; in fact, Delta was noted as being a lessee in the 10-K filings of both companies. It's just a reminder of how broadly intertwined American business can be at times. It can't help but make you wonder a little bit about the wisdom of diversification: the portfolio manager who diligently avoids airlines because they're in such difficult straits might nonetheless still be exposed to them by his or her show biz investments - a business that's supposed to be stable and growing.

It also makes you wonder about the degree of interdependence among firms when it comes to derivative transactions. Guess we'll find out the next time one dissolves.