In Focus

Unscrambling Delta Air Lines, Inc. (NYSE: DAL)

NOTE: During the month of July, we are featuring companies who are headquartered in some of the states we Chicks call home. This week, Georgia kicks off the fun. More than just the state famous for peanuts, peaches and Jimmy Carter, Georgia has 15 public companies featured on Forbes 500 list. Here's how they rate: Home Depot (23), UPS (52), Bellsouth (66), Southern Company (76) Georgia-Pacific (84), Coca-Cola (93), Delta Air Lines (123), Coca-Cola Enterprises (128), Aflac (193), Suntrust Banks (221), GenuineParts (229), First Data (313), Flowers Industries (387), Cox Communications (466) and Mohawk Industries (491). This week we will review Delta Air Lines, Cox Communications, UPS and Flowers Industries with Delta first up on the runway.

Cruising through the Chicks' Dozen with Delta
by Chick Kristin

1. Buy What You Know  I moved to Atlanta, or Hotlanta as Chick Jana and I like to call it, five years ago for a career opportunity. I took a position training a maintenance software program in English and Spanish. Truthfully, I thought it was wiser to have someone else pay for my travel expenses to Latin America rather than yours truly! My employer's airline of choice was none other than "Delta, Delta, Delta, How may I help ya', help ya', help ya'?!" because Atlanta is Delta's largest hub. Therefore, you can trust me when I tell you that I know Delta... and its cancellations, delays, technical difficulties, 800-mile segment upgrades, frequent flyer program, customer service and more.

2. Keep it Simple Sister  I can't remember a time when Americans weren't fascinated with planes. From Kitty Hawk to Lindbergh to the crashes of Pan Am and former Value Jet, we are mystified and now, more than ever, reliant on this speedy form of transportation. Children love planes too. Remember the last time you were at an airport and you watched a father taking his children to the lookout areas to watch the planes take off and land? If a two-year old can admire the technology, a fifth-grader can probably explain to you how the plane works.

3. Industry  In an effort to control part of the upstart regional airlines in the US, Delta, which owns regional carriers Delta Express, Atlantic Southeast, and COMAIR, is starting to realize its potential. Delta has formed a global alliance, Sky Team, with Air France, AeroMexico, CSA Czech Airlines and Korean Air, in efforts to get around national laws and regulatory concerns. According to Danny Cummings, of www.hoovers.com,  "Through such alliances, airlines benefit from each other's resources, which include additional routes and marketing strategies, as well as code-sharing agreements, without incurring the high costs of expansion. For customers, airline alliances offer broader frequent flyer programs, streamlined travel, and simplified systems for purchasing tickets."

4. Leader in its Field  Delta's cruising at a comfortable altitude but has experienced a bit of turbulence along the way. Currently, Delta Air Lines is the #3 US carrier behind United Airlines and American Airlines. Nonetheless, Delta operates the largest single airport operation of any city or airline anywhere in the world at Hartsfield International Airport in Hotlanta, Georgia, according to Chief Executive Officer, Leo F. Mullin. Delta did receive the 1998 Airline of the Year Award by Air Transport World. And in 2000, Teleperformance, a Paris-based customer relationship management company, awarded Delta's Customer Support Desk with the U.S. 2000 Grand Prix Customer Service Award for its outstanding e-mail customer service support.

5. Repeat Profitability  Summer is here and summer is made for traveling. Despite a decrease in business-class ticket purchases, Delta's summer offers hope to increase sales and re-instill confidence lost in its partner, Comair, whose pilots just settled their strike. Customers who purchase tickets using Delta's website, www.delta.com, will receive up to an additional 20 percent off each round-trip purchase.

In this Chick's humble opinion, if the Federal Aviation Administration can figure out how to improve the airline industries' performance, and create additional runways at the US' busiest airports, without offending the environmentalists, Delta and airline industries alike should continue to reap benefits of increased air travel.

6. Gross Margin  Chicks like Gross Margins to be 50% or higher. To make sure Delta's soars above the rest, I consulted DAL's Income Statement for Quarter Ending 03-31-2001.

(Revenue - Cost of Revenue) / Revenue =
3,738 - 1,232 / 3,738 =
.67 * 100 = 67%

Sure enough, Delta passes this test with flying colors.

7. Net Margin  Preferring Net Margins of 8% or higher, let's see how Delta ranks.

Net Income / Revenue
- 133 / 3,738 =
-.0355 * 100 = -3.6%

You're reading right -- a negative Net Income, or a Net Loss as the accountants would like to say. Operating Expenses far exceeded Revenue for Delta's first quarter. Now that's some serious turbulence!

8. Cash to Long Term Debt  You can probably guess Chicks prefer companies with more cash than debt. I used DAL's Balance Sheet for Quarter Ending 03-31-2001 to get these figures.

Cash = 1,177
Long Term Debt = 5,990

Ouch! Delta has .2 times as much cash as it does debt.

9. Flow Ratio Here, we want assets and cash to be in line with liabilities and debt, no greater than 1.5.

(Current Assets - Cash) / (Current Liabilities - Short Term Debt)
2,930 - 1,177 / 5,554 - 0 = .32

OK, Delta outscores all of the companies we currently own today. I can't remember the last time I've seen a flow ratio this low. Cruising well above the clouds -- congrats to you, Delta!

10. Increasing Growth

(Revenue Quarter 4) - (Revenue Quarter 3) = X
12,049 - 4,191 = 7,858
X / Revenue Quarter 3 = Y
7,858 / 4,191 = 1.87
1.87 x 100 = 187%

Now, that's what I call growth. More people travel in the winter, or the last three months of the year than they do in the first three months of a new year, all due to the holidays and your gift budget. So, it makes sense that Delta would grow when comparing these quarters. I decided to compare these numbers annually, just to make sure, using the Annual Income Statement. Guess what?! Every year, Delta's revenue has increased a minimum of at least 5% with no drops reported since 1997. You've earned your wings, Delta.

11. Strong Management and History   Leo F. Mullin has been Chief Executive Officer (CEO) of Delta since 1997. Before joining DAL, he served as First Chicago Corporations' Chief Operating Officer. His extensive, impressive resume assures me Delta is in good hands. Mullin recently said at a Chicago luncheon, "From my railroad experience with ConRail to my banking years with First Trust and my utilities experience with Commonwealth Edison here in Chicago, I have found one simple, clear constant principle, and it is this: We must control our destiny. Whether the issue at hand is government regulations or kamikaze competition, never abandon the flight plan. Change it yes, but never abandon it."

12. Buy on Sale

52-week High: $ 57.81
52-week Low: $ 37.52
Average Price: $ 47.67
Current Price: $ 44.08

It's on sale!