Sifting the Rubble for Beaten-Down Airline Values

Wing Tips takes a critical look at some of the second quarter's worst performers.
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In a little change of pace for your summer weekend, let's wrap up the discussion we started

last week concerning performance results from the second quarter. In that column, we concentrated on those stocks that did well last quarter. This time, let's look at those airline stocks that didn't do so well. Because let's face it -- we are all anxious to find those beaten-down stories just ripe for a run.

The first name we'll take a look at is the quarter's worst-performing stock of all the airline-related companies we follow. Former highflier

Atlantic Coast

(ACAI)

posted a 32% drop for the quarter. What does the all-powerful and all-seeing Wing Tips see on the horizon for Atlantic Coast? Generally speaking, we think the stock was oversold on the news of falling yields earlier in the quarter, as we discussed here previously. However, it didn't bounce back before the end of the quarter as strongly as we would have liked.

Rumors were hot and heavy at the end of June that Atlantic Coast was attracting some interested suitors. That would make sense. The company is one strategic little gem, and at that time, it was priced at fire-sale levels.

Since the end of June, the stock has been flat.

Will Atlantic Coast have a strong third quarter in terms of stock performance? We're not sure. We wouldn't be surprised to see the stock make some headway and we don't see it dropping back drastically as it did earlier in the second quarter, but there is no doubt that earnings will be hurt this quarter as a result of overcapacity issues at Dulles.

So, if this one moves, it will be for one of two reasons. One,

UAL's

(UAL) - Get Report

United Airlines

pilots agree to allow Atlantic Coast to fly a sizable increase in the number of regional jets for the airline. Or, two, at these prices, the airline might wind up in a predator's sights. Just a thought. A little off the wall, but not out of the realm of possibility.

Delta Air Lines

(DAL) - Get Report

dropped a cool 17% on the quarter, ending the period at 57 5/8. We like the stock. We think this one has been beaten up too much -- earnings should be some of the strongest of the all the majors which report next week. And we might see the stock take a little bounce upward as a result.

But long term, we still like the stock. Now, if the company can just get its customer-service issues under control, we'd

really

be happy.

United Airlines also dropped 17% last quarter. Again, United should see improving earnings this quarter because of the uptick in Asia. We're not sure how much the fare discounting the company started in June -- in addition to the current fare wars on transatlantic routes -- is going to hurt them. And then there is that situation at Dulles.

In addition, don't forget that United has been in a bit of a "sit back and wait for the next episode" mode of late due to a slew of upper management changes that have now finally been made. As a result, we would expect the airline to be a bit more active on a number of fronts for the remainder of the year. We are not as high on UAL's stock as we are on Delta's at this point.

SkyWest

(SKYW) - Get Report

dropped back 14% last quarter. We used to be big fans of the airline, and we still are. We just can't figure out what the heck the company is doing. And as a result, we are not as big fans of the stock as we once were.

After all, first it was the Delta/United two-step that dragged on for months. Would Skywest dump Delta, forsaking all others for United alone? Or would it continue to try and serve both masters? Finally, the decision was made. We think. And as far as we know, SkyWest will continue to fly for both United and Delta for at least the next couple of years.

Then we heard over and over that the company was going to announce a new regional jet order in Paris. And ... no order. We don't know. We're not as solid as we were on this one in the past. It still strikes us as a well-run company. But the stock is not one we feel strongly about right now.

Midway Airlines

(MDWY)

lost 13% on the quarter and is in the midst of some heavy-duty rethinking. This one is too iffy for us right now.

Comair

(COMR)

and

Alaska Airlines

(ALK) - Get Report

both dropped 12% on the quarter. Lots of rumors surrounding both of these last quarter in terms of interested suitors, etc. We think this will always be the case with both airlines until a major change is made at either one or both. Why? Strategically, they are humming little gold mines that would drastically change a number of interested parties' bottom lines. It's just that simple.

However, regardless of the second-quarter doldrums that affected both stocks, in the long term, we remain fans of both companies.

Overall, of all the airlines we're looking at today, which ones do we like as potential gainers for the second quarter?

Answer:

Northwest Airlines

(NWAC)

,

Mesa Airlines

(MESA) - Get Report

,

Atlantic Coast

(ACAI)

,

AirTran

(AAIR)

,

Comair

(COMR)

,

LanChile

(LFL)

and Delta.

Amtran

(AMTR)

is a potential mover and shaker as well.

So let's sit back, catch some rays and see what the remainder of the summer brings us.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

hhegeman@planebusiness.com.