Earnings Preview: Northwest Airlines Corp.

OVERVIEW: It was a big quarter for Northwest, if not a profitable one.

On April 14, Eagan, Minn.-based Northwest announced that Delta Air Lines Inc. will buy it in a stock swap deal. The news resolved months of speculation that Delta and Northwest--the nation's third- and fifth-biggest carriers--would join. Delta now says it expects $2 billion a year in savings once the two carriers are fully integrated, although Northwest has said that process could take as long as two years.

But cutting overhead will not make oil any cheaper. Fuel prices continued sharp runups during the quarter, and fuel is Northwest's biggest single expense, as it is at most other large carriers. However, other carriers last week--American, Delta, and Continental--posted results that were better than analysts expected, even though only Delta had an operating profit.

BY THE NUMBERS: Analysts, on average, expect Northwest to report a loss of 54 cents per share on revenue of $3.44 billion, according to Thomson Financial.

ANALYST TAKE: Several analysts have pointed out that valuing airline stocks in general has gotten much more difficult because they are so closely tied to the price of fuel.

"There is a decent chance that some of the U.S. airlines will face a liquidity crisis in 2009 and their equity values will go to zero or near zero," UBS analyst Kevin Crissey wrote in a note to clients on Monday. "Then again, if the right events play out (e.g., fuel prices collapse) these same stocks may be worth several times their current value."

Crissey rated the liklihood of a serious cash crunch at Northwest before the end of 2009 at 11 percent, the lowest of any of the large carriers.

WHAT'S AHEAD: Investors will be watching Northwest for hints about how demand is holding up as they raise fares, as well as any word about progress on closing the deal with Delta.

STOCK PERFORMANCE: Northwest shares started the second quarter at $8.99 per share, but fell as much as 26 percent during the quarter. They traded around $8.20 on Monday.