Delta Will Go To $0

Includes: ALX, DAL, RJETQ
by: Herb Greenberg

If you missed my bleary-eyed, out-of-bed-at-3:30 “Herb on the Street” hit on CNBC’s Squawk Box this morning, when my brain and mouth were having trouble communicating, here's a summary:

Buyer beware:
We started with Delta Airlines (DALRQ.PK), and while I never put buys or sells on a stock, I said (rather firmly), “Don’t buy this stock. It will go to zero.” Joe Kernen countered that a story in Barron’s over the weekend said there may be some cash left for investors. I replied that based on what the company says in its SEC filings, the stock will be eliminated.

Furthermore, I pointed out, US Airways (LCC) has said in its takeover documents that it is directing its proposal to Delta creditors. Joe, whose point is well taken and who was (thankfully!) trying to keep me out of trouble, questioned whether I really meant “zero.” I conceded anything is possible, but that the creditors are likely to get whatever they can. (Off-line, after the show, I told him I’d buy him a non-expense account dinner at choice of diners in Northern New Jersey if Delta’s existing stock doesn’t get eliminated. I said I’d even buy the wine. He shot back: “One word – Alexanders.”

Alexanders (NYSE:ALX) was a bankrupt New York department store chain whose stock did one of the great turnarounds after management capitalized on the company’s underlying real estate; it’s now $412.

I reminded him about Owens Corning (NYSE:OC) shares before the it emerged from bankruptcy; they traded actively on the belief that shareholders would still get something even though the company said the shares would be extinguished, which they were -- as is usually the case with bankruptcies. Alexander’s was the exception; Owens Corning, the rule.

Sticking with the airlines: Republic Airways (RJET), a hot-performing, low-cost regional air carrier, has been riding on on expectations that it would win a contract to provide regional service for post-bankrupt Delta. The company, which has been winning contract after contract, saw its stock pull back in the wake of US Air’s bid for Delta.

I noted that while bulls believe the pullback is warranted, based on uncertainties tied to the merger, they also believe the company remains well positioned for the future no matter who is running Delta. If Republic does get a deal with Delta, the bulls say, Republic’s shares could be headed to the mid $20s.

It should be noted that Delta awarded a small contract to Skywest (NASDAQ:SKYW). It was for a small part of business Republic didn't bid on because it involved flying Bombardier plans -- the Embraer it flies. If nothing else the contract with Skywest shows Delta is not delaying its regional airline build-out.