Airline Stocks: Northwest, Delta give up ground as oil looms - Airlines - Transportation - Markets/Exchanges - Market News

Airline Stocks: Northwest, Delta give up ground as oil looms - Airlines - Transportation - Markets/Exchanges - Market News

DELTA AT RISK OF BANKRUPTCY!

DAL has sold off hard the past several sessions. The market is clearly pricing in a higher risk of bankruptcy. Most of the press and talk is about the pending show-down between NWAC and its mechanics union. The attitude of management is a bit to cocky but the reality is that the union has a weak poker hand and its bark is more bluff than bite. How's that for a mixed metaphor?

How can the mechanics win? Other airlines have already cut their labor cost. The company is prepared to hire replacement workers and it is willing to file bankruptcy if necessary. The union of course must bargain hard to reduce the reductions as much as possible but the union is truly like the kid on the beach building a sand fortress around his sand castle.

NWAC has traded up and down sideways for a couple of months. DAL is trading down hard. DAL has the same option to file bankruptcy and based on the stock price, the market believes it probably will have to file.

My family owns a couple of small DAL positions. One of the less aggressive investors has sold DAL to take the tax loss. A more aggressive trader has added shares. The pop will be quick and large if the market gets just a whiff of a settlement. The "market" will know long before the announcement.

One of the rules to be broken at peril is the rule about averaging down. One should regularly and routinely buy more shares on the way up (averaging up) but one should seldom buy more shares on the way down (averaging down). The fact is that the business is in much better shape than the common perception but the years of losses have erased the tangible book values. Some of the best purchases I have ever made were companies whose tangible book value was less than zero. It is an old story--the higher the risk the higher the potential reward--trade DAL and NWAC with a watchful and cautious eye.

THE BULL CONTINUES TO RUN!