10:37 AM EDT, 08/09/2024 (MT Newswires) -- Delta Air Lines' ( DAL ) claim that CrowdStrike ( CRWD ) engaged in "gross negligence" and "willful misconduct" related to the July global tech outage would be difficult to prove, Wedbush Securities said in a Friday client note.

CrowdStrike's ( CRWD ) legal counsel, Michael Carlinsky, said in a July 29 letter to David Boies, who is representing Delta, that any liability by CrowdStrike ( CRWD ) is contractually capped at an amount in the single-digit millions. Boies rejected that cap in a Thursday letter.

"The contract does not cap liability or damages for gross negligence or willful misconduct," according to Boies' letter.

Proving an entity engaged in gross negligence and willful misconduct has a high bar, according to Wedbush, citing discussions with legal experts. "That said, the situation remains fluid," analysts led by Taz Koujalgi wrote in the note.

Wedbush has an outperform rating on CrowdStrike's ( CRWD ) stock with a 12-month price target of $315.

The July 19 outage stemmed from an update CrowdStrike ( CRWD ) deployed for its Falcon sensors on Microsoft ( MSFT ) Windows systems, affecting several industries, banks, health care organizations and airlines. The incident caused the carrier to cancel about 7,000 flights over five days, Delta said in a Thursday filing with the Securities and Exchange Commission.

The carrier estimates a third-quarter direct revenue impact of $380 million from the outage, mainly due to refunds for cancelled flights. Non-fuel expenses and the subsequent operational recovery are expected to cost at $170 million, while fuel costs are set to be $50 million lower as a result of the flight cancellations, according to Delta. Annual capacity growth for the September quarter is anticipated to be impacted by roughly 1.5 points.

In the filing, Delta Chief Executive Ed Bastian reiterated the airline's intention to pursue legal action against CrowdStrike ( CRWD ) and Microsoft ( MSFT ) to recover damages of "at least $500 million." Neither CrowdStrike ( CRWD ) nor Microsoft ( MSFT ) responded to MT Newswires' requests for comment.

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