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Sky West: Ready When Delta Is?

BusinessWeek Investor -- Inside Wall Street

SkyWest: Ready When Delta Is?

As a regional airline, SkyWest (SKYW) hasn't exactly been a highflier: Its shares have plunged from 40 in January to 22 lately. The stock hardly moved even when SkyWest reported record earnings for its September quarter. But SkyWest may win respect soon: The buzz is that Delta Air Lines, which owns some 13% of Utah's SkyWest, may opt to buy the remainder of the shares. SkyWest operates under the name Delta Connection from Salt Lake City and Los Angeles. In addition, it operates as United Express for United Airlines.

Here's why some Delta airline insiders think a buyout may happen: On Oct. 18, Delta agreed to acquire the 78% of Comair Holdings' stock that it doesn't already own. In February, Delta had bought another Delta feeder airline, Atlantic Southeast. The buyout value of SkyWest, based on the premium that Delta paid for Atlantic and Comair, is estimated to be in excess of $30 a share, figures Sven Mondberg of Starr Securities. "According to industry experts, seamless service--owning and operating the service right down to the regional level--is the current thinking among airlines," he says.

Analyst Brian Harris of Salomon Smith Barney has upgraded his rating on SkyWest from neutral to buy. "In addition to being a strong fundamental story, SkyWest is the last regional carrier that Delta has a minority stake in," he notes. More consolidation is likely among the remaining regionals, he says, and SkyWest "could come into play."By Gene G. MarcialReturn to top

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