General Lee
Well-known member
- Joined
- Aug 24, 2002
- Posts
- 20,442
Pilots' seniority issue won't ground Delta / Northwest deal
for long
Feb 28th 2008 3:20PM by Joseph Lazzaro
Look for the stalled Delta Air Lines (NYSE: DAL) / Northwest
Airline (NYSE: NWA) deal talks to regain momentum and the
merger to be announced in the week ahead, an analyst
confidently told BloggingStocks Thursday.
Independent stock analyst C. Leonard Bauer, formerly of
Prudential, said the Delta / Northwest talks may be stalled
by the inability of the companies' pilots unions to reach an
agreement on seniority lists, but that traditional,
formidable hurdle will not stop this deal from coming to
fruition due to its "strong marriage fundamentals."
Attractive fundamentals
Bauer said three fundamentals will drive the deal: absence
of overlapping city pairs, economies of scale and passenger
demand.
"First, there's the overall flight route fit. Delta and
Northwest have only 10 or 12 cities pairs that overlap, so
from a destination coverage standpoint, the deal is very
attractive," Bauer said. "Second, the new company will have
massive economies of scale and will be a force in the new
global market. This will be a profitable airline."
"Third, unlike typical deals which usually involve mega lay-
offs, this one won't because of solid passenger demand and
prospects for international travel growth," Bauer said.
"There will be some cutting of managers and shifting of
employees here and there, but anyone anticipating a 20,000
employee lay-off is mistaken. In fact, after a consolidation
period, the new Delta/Northwest is likely to add employees
as passenger traffic grows."
Both Delta and Northwest traded lower Thursday afternoon
amid a broader market sell-off. Delta (NYSE: DAL) declined
68 cents to $14.32, while Northwest (NYSE: NWA) fell 75
cents to $14.36. Bauer added that he does not have a rating
on, nor own shares in either company.
Arbitrage: no; invest: si
However, despite the likelihood that the talks will produce
a union, Bauer does not recommend that typical investors try
to profit from the deal short-term via a speculative trade.
"Unless you're well-versed in the complexities and multitude
of risks inherent in deal arbitrage, with appropriate
hedges, it's best to avoid dabbling in it," Bauer said.
A better investment strategy, Bauer said, would involve
waiting for the possible merged company to complete its
initial consolidation period of about 2-3 months, then buy a
position in stages (dollar-cost-average) over a six-week or
two-month period. Bauer likes the inherent value in a
potential Delta / Northwest entity, and believes it will be
followed by another attractive airline merger, possibly
involving Continental (NYSE: CAL) with United Air Lines
(NASDAQ: UAUA).
A global market
Bauer puts the probability of Delta / Northwest deal "at 70-
80%." The airline sector, in his interpretation, is at the
beginning of its second major transformation, which will he
believes will involve 2 or 3 U.S. airline mergers to create
carriers with the resources and planes to serve "the new
mass market of this decade, the global mass market."
A Delta / Northwest merger would create the world's biggest
airline in terms of traffic: Delta served about 74 million
passengers in 2007 and Northwest, about 56 million -- ahead
of American Airlines (NYSE: AMR) 129 million passengers.
Any potential U.S. airline merger would be subject to
federal anti-trust and national security reviews, Bauer
added.
Bye Bye--General Lee
for long
Feb 28th 2008 3:20PM by Joseph Lazzaro
Look for the stalled Delta Air Lines (NYSE: DAL) / Northwest
Airline (NYSE: NWA) deal talks to regain momentum and the
merger to be announced in the week ahead, an analyst
confidently told BloggingStocks Thursday.
Independent stock analyst C. Leonard Bauer, formerly of
Prudential, said the Delta / Northwest talks may be stalled
by the inability of the companies' pilots unions to reach an
agreement on seniority lists, but that traditional,
formidable hurdle will not stop this deal from coming to
fruition due to its "strong marriage fundamentals."
Attractive fundamentals
Bauer said three fundamentals will drive the deal: absence
of overlapping city pairs, economies of scale and passenger
demand.
"First, there's the overall flight route fit. Delta and
Northwest have only 10 or 12 cities pairs that overlap, so
from a destination coverage standpoint, the deal is very
attractive," Bauer said. "Second, the new company will have
massive economies of scale and will be a force in the new
global market. This will be a profitable airline."
"Third, unlike typical deals which usually involve mega lay-
offs, this one won't because of solid passenger demand and
prospects for international travel growth," Bauer said.
"There will be some cutting of managers and shifting of
employees here and there, but anyone anticipating a 20,000
employee lay-off is mistaken. In fact, after a consolidation
period, the new Delta/Northwest is likely to add employees
as passenger traffic grows."
Both Delta and Northwest traded lower Thursday afternoon
amid a broader market sell-off. Delta (NYSE: DAL) declined
68 cents to $14.32, while Northwest (NYSE: NWA) fell 75
cents to $14.36. Bauer added that he does not have a rating
on, nor own shares in either company.
Arbitrage: no; invest: si
However, despite the likelihood that the talks will produce
a union, Bauer does not recommend that typical investors try
to profit from the deal short-term via a speculative trade.
"Unless you're well-versed in the complexities and multitude
of risks inherent in deal arbitrage, with appropriate
hedges, it's best to avoid dabbling in it," Bauer said.
A better investment strategy, Bauer said, would involve
waiting for the possible merged company to complete its
initial consolidation period of about 2-3 months, then buy a
position in stages (dollar-cost-average) over a six-week or
two-month period. Bauer likes the inherent value in a
potential Delta / Northwest entity, and believes it will be
followed by another attractive airline merger, possibly
involving Continental (NYSE: CAL) with United Air Lines
(NASDAQ: UAUA).
A global market
Bauer puts the probability of Delta / Northwest deal "at 70-
80%." The airline sector, in his interpretation, is at the
beginning of its second major transformation, which will he
believes will involve 2 or 3 U.S. airline mergers to create
carriers with the resources and planes to serve "the new
mass market of this decade, the global mass market."
A Delta / Northwest merger would create the world's biggest
airline in terms of traffic: Delta served about 74 million
passengers in 2007 and Northwest, about 56 million -- ahead
of American Airlines (NYSE: AMR) 129 million passengers.
Any potential U.S. airline merger would be subject to
federal anti-trust and national security reviews, Bauer
added.
Bye Bye--General Lee
Uh....again. 
