Last September I was bearish on Delta Airlines (DAL), saying “How quickly we get from something that looks enticing to something that looks like it came out of bankruptcy five months ago. Which, of course, it did. Bottom line, if you want to take a flier on an airline, I’d stick with one of the short squeeze plays. The majors still look like they can cause a major league stomachache.”

Earlier this month, I noted that I should learn to take the money and run, as three of my previously correct bearish calls had been bolstered by takeover rumors.  With Delta now solidly back in the column of not making me look stupid, it’s time to call it quits on this call.

U.S airlines plunge on recession worries | Markets | Markets News | Reuters

Shares in U.S. airlines plunged on Wednesday, with Northwest Airlines (NWA) and Alaska Air Group (ALK) dropping more than 10 percent, after JP Morgan cut its ratings on those carriers and several others due to recession concerns.

Since my original bearish article, Delta is now down 37.3%, compared to a 10.3% decline in the S&P 500 (SPY) over the same period. Although I didn’t take a financial position in the stock, I am figuratively closing the position. Before another greater fool comes along and tries to buy them out, I’m taking the money and running.

Disclosure: At the time of publication, William Trent has no financial position in the companies mentioned. 

The Board of Directors of Small Cap Watch List (Track at Marketocracy) member Pinnacle Airlines Corp. (PNCL) authorized a new share repurchase program to acquire up to $30 million of the Company’s outstanding common stock. If executed, the share count could be reduced by as much as 8%, and there doesn’t seem to be any reason not to execute on it. As the company noted:

Pinnacle holds $42.5 million face amount of unsecured claims against Northwest Airlines (NWA), and is evaluating options to monetize this non-core asset. Pinnacle’s Board of Directors may increase the amount authorized under the share repurchase program in future periods, depending on the Company’s working capital needs and its ability to monetize its remaining unsecured claims against Northwest.

In addition to the recent growth opportunities, Pinnacle’s low-risk strategy requires little in the way of capital expenditures. Over the last three years, Pinnacle has generated a cumulative $86 million in cash flow from operations and needed only $21 million for capital expenditures. As a result, it ended 2006 with $72 million in short-term investments and a relatively low (for an airline) $121 million in debt.

Small Cap Watch List (Track at Marketocracy) member Pinnacle Airlines Corp. (PNCL) reported first quarter 2007 net income and earnings per fully diluted share (”EPS”) of $9.4 million and $0.38, respectively. Analysts had been expecting the company to earn $0.40. However, thereduction in net income was caused primarily by the contractual changes in the airline services agreement with Northwest Airlines, Inc. As we noted before, the long-term impact of those contractual changes are largely offset by a new agreement with Delta.

Shares are up ever so slightly on the news.

Small Cap Watch List (Track at Marketocracy) member Pinnacle Airlines Corp (PNCL) issued the following News Release:

Pinnacle Airlines Corp. (PNCL) announced today that it has entered into a new capacity purchase agreement with Delta Air Lines (DNTNQ) to operate 16 CRJ-900 aircraft as a Delta Connection carrier. Pinnacle currently expects that the aircraft will be operated by its wholly owned regional jet subsidiary, Pinnacle Airlines, Inc.Under the agreement, Pinnacle will directly acquire and finance the aircraft. Pinnacle will take delivery of the aircraft between November 2007 and July 2008, with scheduled service as a Delta Connection carrier beginning in December 2007. The term of the agreement is for ten years.

The “capacity purchase agreement” sounds similar to that described in another article. The fact that the capacity has been sold in advance reduces Pinnacle’s risk.

Furthermore, the deal almost exactly offsets the number of aircraft the company failed to get from Northwest (NWA) due to the breakdown in pilot negotiations. Within a week, what looked like a modest setback is now at least a break-even.

According to an SEC Filing, Small Cap Watch List (Track at Marketocracy) member Pinnacle Airlines (PNCL), an Amended and Restated Airline Services Agreement with Northwest Airlines (NWA) required Pinnacle and the Airline Pilots Association to reach a new collective bargaining agreement. Since they did not, Northwest intends to transition the 15 aircraft delivered to Pinnacle in the first quarter of 2007 to one of Northwest’s wholly owned subsidiaries.

Since the election was optional on Northwest’s part, we assume it was more in their interest than in Pinnacle’s. However, in lieu of the aircraft Pinnacle is entitled to the full amount of its stipulated unsecured claim in the Northwest bankruptcy proceedings. The Company still retains $42.5 million of this unsecured claim, and may monetize it in the near future.