Taking a Flier on Airlines
08/23/05 - 07:09 AM EDT
Emma Trincal
It's white-knuckle time in the U.S. airlines industry as many companies scramble for last-minute financing or struggle with labor-related chaos. When risk runs this high, you can be sure hedge funds are sniffing around.
At Delta (DAL Quote - Cramer on DAL - Stock Picks), which recently sold its Atlantic Southeast unit to SkyWest Airlines (SKYW Quote - Cramer on SKYW - Stock Picks) in a frantic bid to raise cash, Steven Cohen's SAC Capital Advisors has surfaced as a shareholder, with 8.8 million shares, or about 6% of the equity. Cohen's $6.5 billion fund is also an owner of Northwest (NWAC Quote - Cramer on NWAC - Stock Picks), which faces upheaval of its own now that its mechanics union has made good on a threat to walk off the job. Cohen's SAC Capital is making straight stock bets, not elaborate turnaround plays that could survive a bankruptcy filing. If Delta goes bankrupt, Cohen's exit strategies would be extremely limited. An SAC spokesman did not return calls seeking comment. "Those guys are looking for a quick turnaround and are willing to take the relatively high risk that goes along with it," says Robert Mann, an airline consultant at R.W. Mann. Betting that Delta will avoid bankruptcy, SAC owns what amounts to a $1.50 call option that someone will pony up enough money to keep the airline flying. Roger King, an airlines analyst at CreditSights, says the airline needs a "miraculous infusion of cash." Based on current cash, Mann believes, Delta can't avoid bankruptcy even if it sells its Comair unit. That leaves equity holders, which might ordinarily be able to press a turnaround program on management, with few options. "You can't be an activist because Delta will be worthless pretty soon," says King of CreditSights, a leading independent research firm. Things can, of course, change. Back in 2003, AMR's(AMR Quote - Cramer on AMR - Stock Picks) American Airlines received a financing package from General Electric(GE Quote - Cramer on GE - Stock Picks); its stock doubled during that year.
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