Wednesday, September 14, 2005


As reported ad nausea, DAL declared bankruptcy today. This action reminds me of 1982 when American Motors, Ford, GM and Chrysler were all in trouble. (I lost money on AMO when it was taken over by Chrysler and then Chrysler was on the brink of bankruptcy). When the bottom was finally made, the stocks did very well for many years thereafter. Chrysler doubled in just a few days and it multiplied its value many times over the next 10 years or so.

If you own DAL, it does not make sense to continue to hold the stock. Existing shareholders will probably receive no ownership benefits. Bond holders may get only pennies on the dollar. Employees will see their wages and pensions slashed if not their jobs.

DAL will cut its cost during bankruptcy. It will not likely be liquidated. The company coming out of bankruptcy will probably service fewer routes with fewer plans than the current company. Other carriers will pick up the traffic lost.

Other carriers, in particular NWAC, also need to cut costs. For now, NWAC, has put off bankruptcy. Pilots and other employees are considering demands to cut cost. Late in the day, NWAC, was up sharply on the hope that the company will avoid bankruptcy.

CAL and AMR are two of the legacy carriers to have successfully cut costs filing for bankruptcy. NWAC, is currently in a similar position to the AMR situation about 2 years ago. Ironically, the legacy carriers have been having banner years. Business has been outstanding. However, the extraordinary fuel costs have cut DAL's cash to the bone. One of my family members owned DAL. She sold it this morning and put this speculative money into NWAC. She is rolling the dice. Only the young, young at heart or risk takers should be buying shares of NWAC, . Serious investors, should certainly consider the probability that the strong carriers such as CAL and AMR will benefit in the long-run from the DAL filing.

Check Out an article in Reuters by Christopher Plumb which agrees with my thoughts on the possible benefits. CAUTION: I write for my own amusement; I do not make recommendations to buy or sell securities.