737 Pylt
Um....Floats anyone??
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Delta Returns to Trading
With Strong Balance Sheet
By THOMAS G. DONLAN
May 13, 2007
Pilots often say that any landing you walk away from is a good landing. By that standard, Delta Air Lines made a good landing into bankruptcy in 2005, for the company walked away from the wreckage and spread its wings for a new take-off this month.
Not so the old shareholders, who were wiped out. The 400 million new shares that opened for trading on the New York Stock Exchange May 3 were issued to former Delta unsecured creditors, employees, managers and the federal Pension Benefit Guaranty Corp.
Trading under the old ticker symbol, DAL, the shares finished last week at about $19. Over the next two quarters, however, the company should do well enough to justify a price closer to $25. Looking further ahead, two Morgan Stanley analysts may well be right when they say "buy on material weakness," and project a share price of $27 to $29.
Delta shed about $13 billion of debt and lease obligations, 6,000 people and 82 planes during its bankruptcy-law proceedings. It now has one of the stronger balance sheets in the industry. And it is looking to grow primarily on international routes, which can be more profitable than domestic business. Moreover, there's a general uptrend in the airline industry and summer is always its best period.
But Delta and all airlines are risky investments, highly vulnerable to slumps, terrorism, fuel-price increases and overcapacity. They face intense competition on key routes. They do well in good times and atrociously in bad times.
Delta's operating losses hit $3.3 billion in 2004 and $2 billion in 2005, before an operating profit of $58 million in 2006. For 2007, Delta projects a pretax profit of about $800 million -- about $2 a new share, meaning the shares are trading for about 10 times 2007 earnings.
Thomas G. Donlan is a staff writer at Barron's magazine, available online at www.barrons.com.
With Strong Balance Sheet
By THOMAS G. DONLAN
May 13, 2007
Pilots often say that any landing you walk away from is a good landing. By that standard, Delta Air Lines made a good landing into bankruptcy in 2005, for the company walked away from the wreckage and spread its wings for a new take-off this month.
Not so the old shareholders, who were wiped out. The 400 million new shares that opened for trading on the New York Stock Exchange May 3 were issued to former Delta unsecured creditors, employees, managers and the federal Pension Benefit Guaranty Corp.
Trading under the old ticker symbol, DAL, the shares finished last week at about $19. Over the next two quarters, however, the company should do well enough to justify a price closer to $25. Looking further ahead, two Morgan Stanley analysts may well be right when they say "buy on material weakness," and project a share price of $27 to $29.
Delta shed about $13 billion of debt and lease obligations, 6,000 people and 82 planes during its bankruptcy-law proceedings. It now has one of the stronger balance sheets in the industry. And it is looking to grow primarily on international routes, which can be more profitable than domestic business. Moreover, there's a general uptrend in the airline industry and summer is always its best period.
But Delta and all airlines are risky investments, highly vulnerable to slumps, terrorism, fuel-price increases and overcapacity. They face intense competition on key routes. They do well in good times and atrociously in bad times.
Delta's operating losses hit $3.3 billion in 2004 and $2 billion in 2005, before an operating profit of $58 million in 2006. For 2007, Delta projects a pretax profit of about $800 million -- about $2 a new share, meaning the shares are trading for about 10 times 2007 earnings.
Thomas G. Donlan is a staff writer at Barron's magazine, available online at www.barrons.com.
