Before Thursday, shares of

Delta Air Lines

(DAL) - Get Report

had gained nearly 14% since May 10, outperforming a market that has been anything but kind to investors over that span.

Not bad for a company that's threatening bankruptcy (if unionized pilots won't agree to a 30% pay cut) and grappling with the price of oil, which is currently at a 21-year-high.

When it comes to airlines, Wall Street analysts always recommend buying when things look bleakest. On Thursday morning, Lehman Brothers analyst Gary Chase upgraded Delta shares to overweight from equal-weight.

"At any given moment, news could move the shares materially lower without much warning," Chase said. "With the slightest hint of good news, however, the shares could rise significantly, especially given a large and growing short-interest position."

In reaction, shares of Delta jumped 44 cents on Thursday to $5.61, driving home the recent trend in Delta shares: Buying at the nadir, which has been an extremely lucrative trade for investors.

On May 10, Delta shares closed at $4.54, a low it hadn't seen in well over two decades in business, after the company warned it may have to file for Chapter 11 protection unless it gets pay cuts. The following day, Standard & Poor's downgraded the company's long-term debt rating and shares have been rallying ever since.

However, the upgrade and upside momentum in Delta's shares isn't to say that the business is healthy or that Wall Street likes the carrier all that much.

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Of the 13 analysts covering the company, four rate it a buy, but four rate it a sell and five rate it a hold, which is often a brokerage's polite way of saying sell. Two analysts have downgraded shares so far this year, and in the last month, three analysts lowered their 2004 earnings expectations by an average of 37 cents on the company, which is now expected to lose $6.20 a share.

Even Chase's upgrade, which is largely based on his view that Delta can avert bankruptcy and slash costs, is packed with caveats that an investment in the carrier is for risk-takers only.

"In fact, we believe that the time frame in which Delta will face a liquidity crisis is much sooner than most believe," Chase said. "We believe a filing will be necessary by winter 2005 and probably as soon as fall of 2004."

Pilot pay cuts will give Delta the time it needs to avoid bankruptcy, which could trigger the kind of recovery that

AMR

(AMR)

, parent of American Airlines, has seen in the last year.

In March, American was preparing the paperwork to file for bankruptcy, sending shares to a low of $1.41. But after the company's CEO was forced out, unions struck a last-minute deal to cut their pay and save the company. Ten-and-a-half months later, American shares had climbed to $17.38.

That kind of move is at the heart of Chase's upgrade of Delta. The longer negotiations drag on with pilots, the more the investment climate becomes an all-or-nothing scenario. Under bankruptcy, the carrier's equity will be valued at zero. Outside of it, with deep pay cuts, increased efficiencies and the kind of top-to-bottom restructuring that Delta management is promising, Chase said shares could be worth as much as $20.

"We see value in Delta shares," Chase said, "but this call is clearly not for the faint of heart."