Analyze This: A Vanishing Portfolio

Spare a thought for beleaguered airline analysts. During the industry's four-year slide they've put in endless hours, mastering every issue from jet-fuel hedges to pension fund deficits. Their reward? With three of the country's top four airlines now in bankruptcy, airline analysts are left with little to analyze.

So they're scrambling to survive any way they can -- reinventing themselves as airline debt experts, branching out into foreign carriers, or boning up on discount and regional outfits. Their goal: avoid the fate of their colleagues at Credit Suisse First Boston (CSR ), which jettisoned airline coverage in January. Zacks Investment Research tracks just 32 airline analysts now, 11 fewer than in 2002. "It's been very volatile," says David Strine, Bear Stearns & Co.'s (BSC ) airline analyst. "Sleep has been really hard to come by."

Strine is rebranding himself as an Asian specialist, with carriers such as Korean Air and Taiwan-based China Airlines Ltd. now representing nearly half of his coverage list. "We're going global," he says, "and we're going more global." The move was a natural for Strine. He started as an analyst for Bear Stearns in Hong Kong in 1997, just before the Asian economic turmoil began. Strine says the experience of sizing up companies in crisis mode came in handy when he moved to New York and later took over the firm's airline coverage in the spring of 2003 -- when the industry was in the midst of its post-September 11 crisis.

Calyon Securities Inc.'s Raymond Neidl is casting a wider net: He's diversifying into aerospace manufacturers such as Boeing Co. (BA ) and Brazil's Embraer. "That's how you survive -- expand," he says. Neidl, a former junk-bond analyst who's based in New York, is also trying to make himself indispensable by being the go-to guy on distressed airline debt. "There's just a lot of hedge-fund interest in all the busted debt," he says. He still covers Continental Airlines Inc. (CAL ) and AMR Corp. (AMR ), two U.S. majors not in bankruptcy court, but he doesn't recommend either. He'd rather chat up clients about profitable regional carriers such as Mesa Air Group Inc. (MESA ) and Republic Airways Holdings Inc. (RJET ), and foreign upstarts like Brazil's GOL Linhas Aéreas Inteligentes (GOL ) and WestJet Airlines Ltd. of Canada.

Hedge funds and private equity firms have joined mutual funds as big consumers of airline research. At AirlineForecasts, a Washington research firm, a hedge fund recently commissioned a 10-year forecast of probable survivors and failures. Another, says CEO Vaughn Cordle, ordered a 33-page analysis of likely mergers -- which he prepared with the help of a furloughed CSFB analyst. "I can't handle all the work," says Cordle, an active pilot and chartered financial analyst. "I'm working my butt off."

With more airline bankruptcies expected and hints of more analyst layoffs in the air, many Wall Streeters are reluctant to talk. But some folks are hopeful. "These are essential service providers, and half of them are profitable," says Merrill Lynch & Co. (MER ) analyst Michael Linenberg, who co-heads the New York Society of Airline Analysts. "There will be winners that emerge from the crisis," adds Strine. "The airline industry is not going to disappear." Even so, he's hedging his bets: He also covers a Chinese railway.

By Roben Farzad in New York

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