Okay, well, last week was kind of a bust around here at the Buzz. We got home late Monday night from our recent trip to the Valley of the Sun, earnings started, my niece came in town for a lovely visit (albeit too short), Wednesday we were listening to AMR’s call and began writing PBB, and then Thursday my mother decided to “go crazy” as she put it — as she got mad and threw a fit in the nursing home, during which she somehow managed to fall out of bed and onto the floor.
After that, she ended up in the emergency room.
Not sure if this was a one-time thing, or some type of further deterioration in her Parkinson’s dementia decline — but she came through it without breaking any bones. Sunday she seemed pretty normal. Well, except for some nasty black and blue reminders of her adventure on the linoleum.
So anyway, pardon my lack of posts last week. It was the proverbial three-ring circus around here.
Looking across the vast sea of airline tidbits today, I note an interesting research note from David Strine, analyst with Bear Stearns. Interesting because he suggests an airline merger that actually makes sense.
In anticipation of JetBlue (JBLU:Nasdaq) announcing third quarter earnings tomorrow, Strine writes that he believes the best thing that could happen to both JetBlue and the not-yet-certificated Virgin America would be for the two airlines to combine forces.
There are two very big reasons for this suggestion by Strine. One, JetBlue needs a lot of money, roughly $200 million by Strine’s estimation, over the next year to fund the airline’s growth plans.
But this means another equity deal is probably in the works. And this means there is further stock dilution coming, and this, on top of all the other issues facing JetBlue, is going to continue to hang over the stock.
On the other hand, Virgin America desperately needs an operating certificate.
As we all know, JetBlue was originally going to be Richard Branson’s U.S. entity. But that deal fell apart when an apparent rift developed between JetBlue CEO David Neeleman and Branson, and Branson took his marbles and went home.
As David Strine said today in his note,
“In our view, if JetBlue and Virgin America were to join forces within the U.S. and simultaneously establish a code sharing agreement with Virgin Atlantic (the London-based international carrier, 49% owned by Singapore Airlines), which happens to serve JFK (JBLU’s hub) they would solve some of their respective problems. The domestic network would quickly become more defendable and they could garner international connections. Further, JBLU could get a much needed capital injection and dVirgin could get around its “citizenship” issue. And, of course, both would eliminate a tough competitor. (Given that Virgin does not even had any service yet, antitrust considerations should not be a hindrance to a deal.)”
Then there is also the potential alliance considerations that could come about with Virgin Blue, Virgin Nigeria, and Virgin Express. Not to mention Virgin Galactic, which eventually hopes to book your flight into outer space.
Could Neeleman and Branson put aside the disagreements they’ve had in the past, kiss and make up, and in the process give both airlines what they need?
I think it’s a good idea. ‘Cause my gut feeling is that Virgin America is not going to get its okay from the DOT anytime soon.
Meanwhile the flow of cash out the door at Virgin is getting out of hand.
As for JetBlue, they need a shot in the arm. Of some type. From somewhere.