Tuesday, March 29, 2005

Forbes.com: Delta Announces Tech Operations Cuts

Forbes.com: Delta Announces Tech Operations Cuts

The airlines are cutting costs like never before. As reported in Forbes, Delta will contract-out its maintenance services; it will save $240 million per year! Sometimes it is hard to get perspective on large numbers. The numbers mean something only in relation to other numbers. The following comparisons are significant: Delta has a market capitalization of little more than $500 million but the latest move will save the company $250 million! Delta has 141 million shares outstanding and the latest move will save $1.77 per share! A $4 share that cuts costs by $1.77 per share makes that share worth more!

I am not an analyst. I am not even a professional investor. I am an amateur with more than 40 years of experiences. I cannot and do not recommend DAL. The company has lost a lot of money in recent years and has a debt to capital ration well in excess of 100% (in other words, the company has a negative book value). Some of my best buys ever have been companies in similar situations. For example, I bought Chrysler in 1982 and NXTL in 2002 at times when neither company had positive book values. Like Jim Cramer, I made the mistake of buying Bethlehem Steel when it was on the way out.

For aggressive investors, it makes sense to own shares in the stronger legacy lines such as AMR and DAL buying with a little money may make sense. One of the value measures that I like is the price to sales ratio. You are unlikely to ever find stocks with lower price to sales ratios that have a decent chance of survival. These shares will do extremely well if the company survives.