Blog > US Stocks and Markets > Options Opportunity: Stick it to the unions
 | Email This Article Email This Article  | 

Options Opportunity: Stick it to the unions

Posted March 18, 2008

“It does not matter that a merger is the only thing that can give Delta and Northwest even a remote shot at success, their corresponding pilot unions are looking out for themselves. ” – Andrew Snyder

By Andrew Snyder

Baltimore (TFN) – This country has some powerful unions. I hate them. I mean I absolutely despise them. They are responsible for this country’s weak manufacturing labor force and are a drain on our entire economy. Their power benefits just a few, while it hurts the masses.

Okay, now that you know I am writing with some bias, let’s see what one of the nation’s strongest union camps has been up to.

For months now, Delta Air Lines and Northwest Airlines have been working on a merger deal. I have discussed it on this site before. The companies’ officials were able to work out a healthy set of plans for the future combined company. In most industries, that would be enough. Once the CEO and board of directors agree on a merger, the rest falls in place. But that is not the case when you have the umbrella of a powerful pilot’s union shadowing your organization.

It does not matter that a merger is the only thing that can give Delta and Northwest even a remote shot at success, their corresponding pilot unions are thinking of nobody but themselves. There decision earlier this week that there is no hope of reaching a compromise surrounding the issue of pilot seniority has eradicated all chance of a merger. Because of their selfish decision, thousands of other folks, especially shareholders, will suffer.

The news today proves it. Because it has no other way to fight soaring oil prices, Delta is forced to rid itself of thousands of costly employees. Its first step was announced this morning. The airline is offering voluntary severance to nearly half its payroll, over 30,000 workers. Its ultimate goal is to eliminate 2,000 employers and reduce capacity by five percent.

This one will turnaround quick

Reading the headlines, this sounds like a decent idea. But lets dig a little further. Let’s look at the overall picture of the economy. How many employees with high-paying airline jobs are willing to walk away from those cushy jobs and enter a jungle-like job market? Delta will be darn lucky if it even gets half its 2,000-person goal to scratch their names from the corporate payroll. The rest of the quota will likely be forced out kicking and screaming in the name of layoffs.

It is not a pretty picture if you are a mainline employee for either of these companies. But at least a handful of senior pilots won’t have to fly the Friday-night redeye to Atlanta (insert your own sarcasm).

Cash in on their greed

For short-term investors, the news is not all that bad. Wall Street still thinks today’s news will add value to the two companies. Share price at both firms is up by more than 4%. But in the long wrong, this week’s action will eventually be remembered as the signal that indicated the beginning of the end for Delta and Northwest. Unless they can find a way to merge with other industry competitors, many domestic airlines do not stand a chance. European operators are already consolidating, now it is their western counterpart’s turn.

If you are looking for a way to cash in on this action, look to buy put options at either airline. They are highly speculative, but Delta’s April 7.50 puts (DALPU.X) look very attractive. All it will take is a bit of bad news over the next month to send these options soaring.

Overly powerful unions are a deficit to this nation’s economy, but that does not mean you cannot make money from their selfish moves.

Related Articles


Posted by Andrew Snyder · Filed Under US Stocks and Markets 

Comments

close Reblog this comment
Powered by Disqus · Learn more
blog comments powered by Disqus