Delta Air Lines Inc. (DAL), the world’s largest airline, commenced cash tender offers to buy certain pass through certificates and its 11.75% senior second lien notes due in 2015. The offer is a part of Delta’s ongoing efforts to reduce debt.
 
The offer includes three series of Northwest Airlines pass through certificates, Delta’s own pass through certificates series and its 11.75% senior second lien notes due in 2015, using a modified Dutch auction procedure.
 
Delta Air Lines continues to improve its balance sheet, which lays a strong foundation for the reminder of 2010 and beyond. The company has enough cash on its balance sheet to pay down its debt and intends to reduce its net debt to $10 billion by 2012 from $17 billion at the end of 2009. During the first half of 2010, the company reduced its net debt to $15.6 billion. At the end of the second quarter, the company had $6 billion in unrestricted liquidity including $4.4 billion in cash and $1.6 billion in indrawn revolving credit facilities. We believe these efforts will position the company strongly relative to its peers.
 
We believe the successful integration of the Northwest merger, investments in new products and network, competitive cost structure and an effort to strengthen the balance sheet will position Delta Air Lines to take advantage of the economic recovery. However, unionized labor, rising fuel price, debt loaded balance sheet and the company’s continued investment in technology keep us cautious on the stock. Further, the company does not pay any dividend on its stock.
 

We are currently maintaining our Neutral recommendation supported by Zacks #3 (Hold) Rank.
 
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