Republic Airways-Delta May Be Near on a New Service Contract

NEW YORK (AFX) -- Shares of Republic Airways Holdings Inc. rose Wednesday, after a Calyon Securities Inc. analyst said he thinks it's likely that the small carrier will soon reach a new flying services agreement with Delta Air Lines Inc.

Shares added 94 cents, or 5.6 percent, to $17.72 in afternoon trading on the Nasdaq with more than twice the usual volume.

Analyst Ray Neidl in a client note said it is likely that Republic in early 2007 will reach a new agreement for regional flying services with Delta Air Lines.

'This contract has been in a state of limbo since Delta entered bankruptcy in 2005, through which the legacy carrier had the right to accept or reject the contract,' wrote Neidl.

In the past, Republic has estimated that changes in its agreement with Delta could cost Republic between $7 million to $10 million in annual revenue, the analyst wrote, but he expects any changes to be 'manageable.'

The contract is likely to include a slightly smaller margin guarantee, but importantly, it means the two companies' relationship will continue, added Neidl.

'Once the new Delta contract is concluded, it will give investors added confidence in the company for longer-term earnings and cash flow predictability,' the analyst wrote, keeping a 'Buy' rating on shares of Republic. He lifted his target price to $23 from $20.

For the rest of the airline industry, Neidl in another client note said he expects the sector to earn $2.3 billion in 2006, compared to a loss of $5.9 billion in 2005. Strong fundamentals for the industry, coupled with merger and acquisition activity, are likely to make 2007 another turnaround year for airlines, the analyst wrote.

'Our recommendation, despite the strong rise in 2006 in airline stock prices, is that investors should become aggressive in this sector for at least the first half of 2007,' the analyst added.

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