Delta-Northwest: Profitability in the Skies?

4/14 - "Turning aside (for the moment) points that argue that with the added cost of public subsidies of aviation and aerospace research, it's hard to envision a U.S. airline as ever being truly 'profitable,' independent stock analyst C. Leonard Bauer told BloggingStocks Monday the merged Delta / Northwest could create an assertive airline capable of racking-up revenue, even as it spurs aviation innovation and change.

The Delta / Northwest deal is a game-changer in that it would create a global player on this side of the Atlantic that can compete with Air France / KLM, Lufthansa, British Airways, and Singapore Airlines," Bauer said. "The new airline will generate massive economies of scale, have a $30 billion annual revenue base, and a lower operating cost structure that will enable it to increase service to Europe, Latin America, and especially Asia, a critical growth market."

"However, due to its complexity and large risk, Bauer does not recommend that typical investors attempt deal arbitrage - - i.e. try to profit from the Delta / Northwest deal short-term via a speculative trade.

A better investment strategy, Bauer said, would involve waiting for the possible merged company to complete its initial consolidation period of about 2-3 months, then buy a position in stages (dollar-cost-average) over a six-week or two-month period. Bauer likes the inherent value in a potential Delta / Northwest entity, and believes it will be followed by another attractive airline merger, possibly involving Continental (NYSE: CAL) with United Air Lines (Nasdaq: UAUA)."