Earlier this week, Delta Air Lines’ CEO criticized cybersecurity firm CrowdStrike and software provider Microsoft for triggering the ‘blue screen of death‘ across its network after a defective update. The IT outage, which went global, disrupted thousands of Delta flights and sparked travel chaos across the US for five days last month, resulting in an estimated $500 million loss.
“We have expressed our regret and apologies to all our customers for this incident and the disruption that resulted,” CrowdStrike spokesperson Jake Schuster told Bloomberg on Thursday.
Schuster said, “While its major competitors rapidly recovered from the incident, Delta rejected our repeated efforts to assist it in a speedy recovery.”
Delta Air Lines CEO Ed Bastian told CNBC’s “Squawk Box” on Wednesday that the outage cost the airline $500 million. He said the carrier would seek damages from the disruptions, adding, “We have no choice.”
“If you’re going to be having access, priority access to the Delta ecosystem in terms of technology, you’ve got to test the stuff you got. You can’t come into a mission critical 24/7 operation and tell us we have a bug,” Bastian said, referring to CrowdStrike’s defective software update that parazlyed its backend network.
Bastian added, “We have to protect our shareholders. We have to protect our customers, our employees, for the damage, not just to the cost of it, but to the brand, the reputational damage and the physical channel.”
On Monday, CNBC’s Phil Lebeau reported that Delta hired top attorney David Boies to sue CrowdStrike and Microsoft for damages.
Given Delta’s move to lawyer up, it appears the airline will be filing a lawsuit in the near term. We suspect other companies will, too.
However, Joseph Gallo, senior vice president at Jefferies, told clients on Wednesday, “We don’t believe CRWD will be held liable” in court by Delta.
“We expect other companies impacted by the IT outage could potentially follow suit (helps with an image to customers of impacted companies), creating further headline risk in the near-term,” he said.
Gallo continued, “We don’t expect CRWD to have to reimburse customers for the outage, but the litigation cost & distraction (CEO appearing before Congress) will certainly weigh.”
Shares have nearly been halved since peaking around $400 in mid-July.
At this stage, and as CNBC’s Jim Cramer would agree, trying to call the bottom in price is akin to catching a falling knife…
Cramer strikes CrowdStrike.
Gallo is right. In the short term, a wave of lawsuits and hearings on Capitol Hill will weigh on shares.
Tyler Durden
Thu, 08/01/2024 – 21:20
