Conduct an examination of Delta, Alaska, and Southwest Airlines exposure to default risk. Although a thorough assessment is not possible due to unavailable particulars, using rough estimates deploy the Merton Default Model and interpret various outputs. Delta Airlines (DAL) Delta Airlines originated from the purchase of an 18-plane fleet of dust-cropping planes by principal founder C.E. Woolman. The first passenger routes were flown in 1929 on a route from Dallas, TX to Jackson, MS. In 1941, the Delta Air Lines headquarters moved from Monroe to Atlanta, Georgia. Delta Airlines ceased crop-dusting operations and began non-stop flights from Los Angeles to Atlanta in the 1960s. Throughout the 1970s and 80s, Delta continued to expand nationally and eventually internationally. With its purchase of Pan Am in 1991, Delta truly became the global carrier that it is today. Alaska Air (ALK) Alaska Air Group was formed in 1932 offering flights from Anchorage, Alaska. Today, it is the fifth largest airline in the U.S. The largest hub in in SeaTac, Washington but also operates hubs in Anchorage, Los Angeles, Portland, and San Francisco. Alaska Air has large air cargo operation on the U. S. west coast transporting Alaskan seafood south and U. S. Postal Service mail and other supplies for Alaskan communities. Southwest Airlines (LUV) Southwest Airlines was formed in 1967 flying between Dallas, Houston, and San Antonio. Today, Southwest Airlines has about 60,000 employees and operates roughly 4,000 departures per day during peak travel times. Further, Southwest transports the largest number of U.S. passengers. 1. Review the Merton Default Model in Chapter 14 and class handouts (pp. 363-374). Explain how option theory and common stock prices can be used to provide default risk metrics. 2. Based on publicly available information, provide reasonable estimates (or guestimates) of the relevant inputs to the Merton Default Model for both Delta Airlines and Southwest Airlines. 3. Based on your inputs in the previous question, interpret the numerous outputs available from the Merton Default Model.