June 5 Lehman Brothers upgraded the U.S.
airline sector to "positive" from "neutral," saying industry
restructuring was coming at an accelerated pace.
"We see real value in the capacity reductions now under way
and believe it is time for investors to revisit the airline
space," analyst Gary Chase said in a note to clients.
Several airlines are reducing workforce and domestic fleet
as the industry grapples with soaring fuel costs and a
Chase upgraded UAL Corp UAUA.O and Northwest Airlines
NWA.N to "overweight" from "equal weight," but said he likes
Delta Air Lines (DAL.N) above all.
Though Delta Air Lines and Northwest Airlines have a
relative safety margin, even these companies could suffer
significantly if there is a sharp spike in oil and might
possibly be forced to file for bankruptcy, Chase said.
"We believe a compelling survivor play is developing within
the airline sector," Chase said. "What's clear to us is that if
nothing changes, bankruptcy risk is significant for the entire
industry. It is for that very reason, however, that we believe
significant changes must, and ultimately will, happen."
The industry will need to access almost $3 billion in new
equity over the next 12 to 18 months to shore up liquidity
positions, he said.
(Reporting by Neha Singh, Bhaswati Mukhopadhyay in Bangalore;
Editing by Deepak Kannan)