Don't look for merged Delta-Northwest to take offI do not know anything of the man.......but he seems to say what we have all been thinking! "Frankly, mergers have rarely worked. Since the bankruptcies of 1980s, senior management has marched through merger after merger and restructure after restructure only to exit their failures with huge golden parachutes." May 22, 2008Dear Mr. Berko: I bought 75 shares of Northwest Airlines at $24 in May of 2007. I thought that coming out of bankruptcy, Northwest would really make a mint and that the stock would zoom to the $60s. As you know, I was very wrong and the stock dropped like a rock. Now that Northwest and Delta are merging, what do you think my chances are of a least getting out even? Or would you recommend that I buy another 75 shares to bring my cost basis down to $16 instead of $24? Or do you think I should sell my 75 shares and just wash my hands of the stock? -- H.S., Minneapolis Dear H.S.: Delta Air Lines Inc. (DAL-$7.70) and Northwest Airlines Corp. (NWA-$8.90) are two huge losers that were forced into bankruptcy a couple of years ago because the idiots who manage them don't know bupkis about running an airline in today's competitive environment. A merger between NWA and DAL will put 935 planes under one hanger that serve 650 cities in 110 countries. Now consider this. DAL reported a $6.4 billion first-quarter loss on revenues of $4.8 billion and NWA reported $4.2 billion first-quarter loss on revenues of $3..2 billion. Cheese and crackers! One might think that Congress was managing those two turkeys. Their resurrection plans include laying off between 1,000 and 1,300 employees at the combined airline headquarters plus sweet bonuses for certain departing executives. Then management will begin to lay off between 11,000 and 16,000 of the new company's 86,000 employees. Oh, what a Christmas that's going to be! Next, new management will reduce fleet size, sell off gate space, combine advertising, reservations, maintenance plus several other functions and the emerging, new entity will be profitable. It won't work because putting two losers together in the same box just creates a bigger loser, neither of which has the strength necessary to create a profit. Frankly, mergers have rarely worked. Since the bankruptcies of 1980s, senior management has marched through merger after merger and restructure after restructure only to exit their failures with huge golden parachutes. There's going to be a lot of anger, resentment, jealousy, political infighting and back stabbing between the DAL and NWA people. Sadly, DAL and NWA employees have been losers in this game of airline musical so often that it's branded into their work ethic. There is little doubt that this "loser" culture will reflect itself in the combined operations of the two carriers. What management fails to recognize is that larger isn't better and reducing fares to attract more travelers is counterproductive to profits. They must understand that it's impossible to make money flying 14 passengers from Milwaukee, Wis., to Columbus, Ohio, on Monday and Friday; or flying 11 passengers from Eugene, Ore., to Walla Walla, Wash., on Tuesdays and Fridays. While the stock may move up a tad or tot, I wouldn't own the shares. In the short term the stock of the new carrier could move up to the $12-$14 level, and that's when it should be sold. I believe their combined liabilities exceed by orders of magnitude their combined assets and their new business plan stinks.. Frankly, I think there's a better chance of Osama bin Laden resigning from al-Qaida and becoming a competitive surfer than of those combined airlines making a profit. Address your financial questions to Malcolm Berko, <address>P.O. Box 1416, Boca Raton, FL 33429</address>or e-mail him at malber@adelphia.net.BigJetCity.com |
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