PlaneBuzz

Moody's Investors Service cut its liquidity rating on United Airlines today amid concerns about higher fuel costs, a slowing economy and rising costs.

The rating firm lowered the speculative grade liquidity rating to SGL-3 to SGL-2, and the outlook to “negative” from “stable.”

Moody's meanwhile affirmed the carrier's corporate family rating and other debt ratings, which remain at B2, which is a speculative or "junk" rating.

Moody's said it lowered the outlook because it expects the airline's operating and financial performance to deteriorate.

"Weaker results are likely because of materially higher fuel costs, but also the weakening economic conditions that are likely to reduce demand and limit recovery of higher fuel costs by raising ticket prices. United also faces continued challenges to control the growth of unit costs," Moody's said.

Sounds about right to me.

Ticker: (Nasdaq:UAUA)

Posted by Holly at 12:13 PM | Permalink | Comments (0)

$600 million of them.

While Southwest Airlines has the strongest balance sheet in the industry, apparently even they are not taking the prospect of the current financial situation lightly.

The airline has borrowed $600 million, leveraging its ownership of 21 Boeing 737 aircraft, the airline disclosed yesterday.

Beth Harbin told Terry Maxon at the Dallas Morning News, "We felt it was wise to bolster our cash position with today's soaring fuel prices and uncertainty in the economy and the credit market. We want to be prepared for whatever happens."

At the end of the first quarter, Southwest had $3.12 billion in cash and short-term investments.

No word on whether or not Southwest CEO Gary Kelly is considering dressing up like one of these wacky squirrels next Halloween, but we think the idea has merit.

Ticker: (NYSE:LUV)

Technorati Tags: Southwest Airlines

Posted by Holly at 3:15 PM | Permalink | Comments (0)

Thanks so much to a reader who just dropped me a note to let me know that ExpressJet cancelled their call this quarter.

Yes, there was a line about this at the bottom of their earnings release. I just blew right past it.

Thank you again to our reader friend at Continental for the news. No wonder I couldn't find the audio of the call, much less the transcript.

That's a shame. There should be a rule against canceling an earnings call when another airline is trying to buy your airline.

Don't you think?

Posted by Holly at 8:04 PM | Permalink | Comments (0)

Closing price for oil today was $125.96. That is an increase of 2.27 on the day.

Looking at this news today, and absorbing all that has been swirling around the industry this week, including the testimony of both Northwest and Delta Air Lines' execs on Capitol Hill this week, I think there are some things that need to be said.

This week Steve Wallach, chairman of the United MEC of the Air Line Pilots Association issued a statement that said, "We are aware of continued speculation in the media of a possible merger between United Airlines and US Airways, and have serious concerns that the highly touted financial benefits to be derived from such a merger are unlikely to be achieved because these benefits are based on assumptions that have no basis in reality," Wallach said. "We therefore believe that a merger with US Airways should be a last resort and not a first choice for United."

I've been thinking about this statement.

First, who has been touting the "financial benefits" to a merger between US Airways and United?

I certainly haven't heard any, and you sure as heck haven't heard anything remotely close to this coming from Doug Parker or Glenn Tilton.

At least not yet.

So I'm not sure what benefits he's talking about, nor what assumptions. I think it's kind of hard to judge anything until you have something in front of you to pick apart. This smacks to me of the pronouncements from the Delta MEC when US Airways tried to do a deal with Delta. Before the details of the deal were even delineated, the MEC was out trashing it.

And why wasn't the United MEC making similar comments about a potential deal with Continental Airlines? Probably because the pilots at United were too mesmerized with the possibility they could bump up to the Continental pilots' pay rates. As this tidbit was mentioned to me by more than one United pilot -- I have to assume this was the case.

As to his comment that a merger with US Airways should be a "last resort," and not a first choice, I have to really scratch my head on this one.

Steve, Continental Airlines management has rejected a merger with your airline. There are no other reasonable potential partners out there. The out-of-bankuptcy financing package that United entered into when it exited bankruptcy was predicated on a merger or buyout occurring. The airline is too leveraged not to do a deal.

Did you look at the first quarter earnings report from United?

If you did, it should be pretty clear that if things stay "status quo" the airline is going to blow through whatever cash it now has (minus that nice shareholder Christmas present in December) in no short order.

In a perfect world, I don't think anyone would be looking to mergers as an answer to a problematic airline industry. Unless it was maybe those greedy investment bankers.

But this is not a perfect world.

In fact, I'd argue that with oil prices in this range, we're looking at the worst possible world for an airline to make a buck.

We're talking survival here.

And I think that all employees of this industry need to understand that union squabbles and pay rates and everything else are going to have to take second seat to something else -- survivability.

Oh, don't get me wrong. I'm the one who annointed United's Glenn Tilton as the Master of Greed. He received his own special award from PlaneBusiness Banter for it. And I think management at United has not done enough to overhaul its underlying operation. And they did little that required heavy lifting during bankruptcy -- except try and wrangle an ATSB loan and do away with their employee pensions.

But we all have to understand that we have to start looking at airlines as big companies with big infrastructure costs, and lots of moving parts. Some of those parts are making money and some aren't. Some made money at $60/barrel oil. Some still made money at $90/barrel oil. But most of them are not going to continue to make money at $125 or $130 barrel/oil or higher.

When it gets right down to it, the parts that are making money are going to be kept, and the parts that aren't, are going to have to be divested, put on a shelf, or parked in Arizona.

Passengers are going to have to get used to higher fares and fewer flights.

And airline employees are going to have to understand that we should not be surprised if we see airlines pulled apart, with pieces going here and other pieces going there. Furloughs, lay-offs. They are both very distinct possibilities. Talking to one analyst this week he and I were wondering just what airline is going to be the first to announce an across the board cut in employees -- beginning in the fall.

Unless oil drops -- we're going to see this happen.

Delta- Northwest is a perfect example.

Either Delta's Richard Anderson is living in la-la land, (which I don't believe) or I think it's a safe bet that after the merger of these two airlines is approved -- we are going to see cuts and changes that no one has even begun to guess about at this point in time.

So -- a potential merger with another airline should be a "last resort?" I think United and its employees should be happy that there exists an airline that would even consider merging with it at this point in time.

There are many more horrible fates that could befall United Airlines than a potential merger with one of the best management teams in the industry. We all have to understand what the situation is now in the U.S. airline industry. No airline is really immune from potential extinction. But the bigger you are, the better you are managed, and the more resources you can tap -- the better your chances for survival are going to be.

Tickers: (Nasdaq:UAUA), (NYSE:LCC)

Technorati Tags: airline earnings, airline industry news, airline mergers, airline stocks, airlines, ALPA, Continental Airlines, United Airlines, US Airways

Posted by Holly at 5:16 PM | Permalink | Comments (2)

They lower earnings estimates for airlines of course.

What else do they have to do?

This morning analyst Kevin Crissey from UBS issued  a research note in which he said, "The outlook for the US airline industry is changing very rapidly as fuel prices play an increasing role in painting the industry’s profit (well..loss) picture. As a result, our estimates have been getting stale quickly. In response we are moving to a periodic update schedule. We will be updating our forecasts at a minimum every two weeks to reflect changes in fuel and other factors."

He continued, "There is little to like about the financials of the airlines right now. We forecast 2008 losses as large as $10/share (UAUA and LCC) and only LUV will be profitable if our numbers are correct. The extent and duration of the cash burn is the question rather than whether or not there will be profits. We have no Buy recommendations and have a Sell on AMR and JBLU."

As for earnings revisions, Kevin noted, "We are updating our forecasts to reflect recent industry news, most of which has been negative. Our estimates now incorporate the 10-day moving average of forward fuel prices (~$3.40/gal) and include the unit revenue and traffic reports from the carriers. US Airways reported April passenger unit revenue (RASM) growth of flat to down two percent and jetBlue announced an April RASM increase of 3%. Both numbers are on tough comparisons given the shift of Easter to March this year but each also prompted us to slightly lower our Q2 revenue forecasts."

My apologies for the fuzzy chart, but it was reproduced from a PDF and had to be "upsized" before converting it so you could read it.

Posted by Holly at 12:46 PM | Permalink | Comments (0)

Oil closed up 16 cents on the day, ending the day at $123.16.

For those of you with really enquiring minds, the spot price of NY Harbor Jet Fuel closed today up six cents to $3.71 a gallon. Remember that this is just the raw fuel cost - no tax, no "in-plane" expenses.

Posted by Holly at 4:28 PM | Permalink | Comments (0)

As of this posting, crude oil futures are trading at......you sitting down?

$123.69.

This is up $1.85 on the day. Not only that, but once again as we have seen more than once over the last couple of weeks, higher than expected inventory numbers this morning from the Energy Information Administration did nothing to make traders back off from driving the price even higher.

Simply reinforces the belief that U.S. demand is taking second seat to the larger problem of the falling value of the U.S. dollar.

Technorati Tags: airline industry news, airlines, Economy, oil prices

Posted by Holly at 1:36 PM | Permalink | Comments (0)

Hey, don't shoot the messenger.

Posted by Holly at 4:10 PM | Permalink | Comments (0)

As of this posting, crude oil futures are trading at $121.65, up 1.68 just since the open.

But that's just the tip of the iceberg this morning when it comes to bad news about oil prices.

Those who have been watching the rise of oil the last few years may recall when Goldman Sachs issued a research note in the spring of 2005. To say the note was controversial at the time would be an understatement. In that note, analysts at the investment firm wrote about a "super spike" in oil prices that could occur pushing oil prices between $50/barrel and $105/barrel until 2009.

This morning Goldman Sachs analysts issued an updated note saying that crude prices are now poised to potentially rise between $150 and $200/barrel. "The possibility of $150 to $200 per barrel seems increasingly likely over the next six to 24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the up-cycle remains a major uncertainty," the note said.

Why?

No surprises in their reasoning.

Demand growth is outpacing output growth. China has more than doubled oil use since New York crude dropped to $16.70 a barrel in November 2001. That has basically taken up most of the world's spare capacity, while at the same time supply has been cut in Nigeria, Iraq, and Venezuela.

Spare production capacity of the Organization of Petroleum Exporting Countries (OPEC)  is low, and the group's exports could easily fall because of "lackluster" supply growth and rising domestic consumption in member countries, the Goldman analysts added.

Underscoring this, Indonesia yesterday said it might quit OPEC as it consumes more oil than it produces, and lowered its oil sales estimate for 2008 to 927,000 barrels a day from 950,000.

Posted by Holly at 10:30 AM | Permalink | Comments (0)

Not quite $120, but close enough.

Posted by Holly at 4:30 PM | Permalink | Comments (0)

And you wonder why I opened up today with sports musings?

Earlier this morning the price of a barrel of crude hit $120 plus in trading. As of this posting, it's hovering around $119.90 and change. Stay tuned.

Not too far removed from the issue of higher oil prices is the news today that United Airlines is probably going to ask its bankers that hold its debt, which include JP Morgan Chase, and Credit Suisse for some "concessions." Or to put it another way, United looks like it wants more "wiggle room" in terms of its credit facilities.

The Financial Times reported today that "While United has maintained that it has enough cash and earnings to remain in compliance with the credit facility's terms, concerns about its financial health helped persuade Continental Airlines Inc. (CAL) to end merger negotiations, people familiar with the matter have said."

Sounds about right to us.

Wouldn't it be nice if you and I had the same option? You know -- your car payment putting just a bit too much strain on your monthly finances? Well, just call up Chase and ask them to re-negotiate that car loan. Piece of cake. Or call  Bank of America and ask that your mortgage be re-negotiated for a longer term.

Unfortunately things don't seem to work that way.

Posted by Holly at 12:55 PM | Permalink | Comments (1)

Hi guys.

Just taking a break from writing this week's issue of PlaneBusiness Banter, and I thought I'd drop in here for a bit and get you caught up on few things of note.

One, the price of crude took a hefty bounce upward today, after having lost some ground on the news Wednesday that crude inventories had risen in the U.S. this week.

Light crude futures closed Friday at 116.32, up 3.80 for the day.

As for airline stocks, it was one crazy week in the airline sector, as shares of Mesa Air Group really took off after the airline announced that it had settled with Hawaiian Airlines earlier this week. Shares of Mesa, which closed last Friday at 47 cents, closed today at 1.10. Woo hoo. That's what happens when a potential bankruptcy filing is able to be put off -- at least for now.

Oh, and that gain? A cool 134% on the week.

The second biggest gainer on the week was Allegiant. The airline posted great first quarter numbers this week, as did WestJet. But Allegiant is the one investors jumped on after the news. Shares here ended the week up 39%, closing today at 27.99.

Shares of WestJet were up 3% for the week, ending at 17.03 today. The deal here in a nutshell? The airline posted excellent first quarter earnings this week, but the airline also talked about the challenge of fuel going forward. I think this spooked some folks. But actually the numbers WestJet posted were nothing short of stellar.

All in all, it was a drop dead great week for the airline sector, as we had the vast majority of stocks we track post gains on the week, and we had seventeen airline stocks post double-digit gains for the week.

Not a bad recovery from last week's carnage on Wall Street for the things with wings.

Technorati Tags: airline stocks, airlines, Allegiant Airlines, Hawaiian Airlines, Mesa Air Group, WestJet

Posted by Holly at 8:49 PM | Permalink | Comments (0)

Hi guys. I see where our friend Godzilla reported the news from yesterday concerning the Mesa Air Group/Hawaiian Airlines settlement. One thing he didn't mention but was fairly telling as to why the suit was settled for the amount it was. Mesa was forced to put up a bond for $90 million as a result of the original trial verdict in which U.S. Bankruptcy Judge Robert Faris found the airline guilty of using confidential information about Hawaiian as part of its planning for its start-up airline go!.

Subtract the $52.5 that Hawaiian received in the deal and what do you end up with?

That's right. Basically $37.5 million.

And how much cash does Mesa Air Group need to pay off its convertible bond owners in June - when that convertible issue becomes due? That's right. About $37.5 million.

So, you say -- so what? Well what it says to me is that Mesa is not, obviously, going to go into bankruptcy without putting up a fight. The other reason this is good news for Mesa is that they would have found it hard to get any traction on any kind of potential "deal" involving the airline or parts of the airline, as long as that verdict stood and the appeal was still in motion -- and it did not seem like it was going to be possible to get an answer from the appeals court until after the convertible note was due in June.

So it works out well for Hawaiian, as I think they are probably ecstatic to get their hands on $52.5 million in cash, especially in this environment, and for Mesa's immediate financial situation -- it gives them more time to figure out their next move. But make no mistake -- they just coughed up $52.5 million in cash -- a major hit. No matter how you try and slice and dice it.

Ticker: (Nasdaq:MESA)

Technorati Tags: airlines, Hawaiian Airlines, Mesa Air Group

Posted by Holly at 2:40 PM | Permalink | Comments (0)

Dear John, er, Dear Jim.

Thanks to a reader who sent a note that gave me an excuse to stop writing about earnings.

For those looking for more details on the proposed SkyWest/XJT deal, ExpressJet has filed some information with the SEC concerning the offer from SkyWest, and more importantly, the "other" deal between SkyWest and Continental.

I only thought this was a squeeze play before I read the letter from Continental Airlines' CFO Jeff Misner. Now-- I don't think there is any doubt.

According to Misner's letter that was sent to CEO Jim Ream and Chairman George R. Bravante,

"First, we confirm that we have negotiated a new CPA with SkyWest, which would become effective if SkyWest is successful in acquiring ExpressJet (which, in turn, is subject to due diligence, among other things), and that we would consent to the change of control that would occur upon such an acquisition.

Second, absent our entering into a new CPA with savings of the magnitude we have negotiated with SkyWest, we currently expect to deliver to ExpressJet on June 28, 2008, a notice to withdraw 51 of the existing 205 Covered Aircraft from the current CPA, beginning in December 2009.  Further, although we have the right to terminate the existing CPA at any time, we currently anticipate we will not extend the term of the current CPA (which we must do, if at all, by December 31, 2008), and thus the current CPA would simply expire in accordance with its terms beginning on December 31, 2010, with the expectation that all aircraft would be removed from the current CPA by the end of 2012.

We hope this information is helpful to you."

Hah. Yeah, I guess it was helpful. I'd say.

Here are links to the two pertinent letters.

First letter is from SkyWest CEO Jerry Atkin to ExpressJet CEO Jim Ream and Chairman George Bravante.

Second letter is from Jeff Misner, Continental's CFO to Jim and George.

Also for you union types, note the request for modification to the current contract between ExpressJet and its pilots. (They are represented by ALPA.)

As for my thinking on all this -- it looks pretty clear. Obviously the folks at ExpressJet decided they'd go public with this all in an attempt to get a better deal. From SkyWest or someone. But given the collaboration of Continental, I'm not so sure ExpressJet has that many options.

Technorati Tags: airline mergers, airlines, Continental Airlines, ExpressJet, SkyWest

Posted by Holly at 5:36 PM | Permalink | Comments (0)

Okay, so I lied. I'm back.

I guess I need to talk about the SkyWest/ExpressJet deal. Or no deal as it stands right now.

ExpressJet said less than an hour ago that its board had unanimously rejected an offer by SkyWest to purchase the company for $3.50 a share.

ExpressJet said that the committee believes that the fair value of the company's stock is "substantially higher" than SkyWest's proposal and does not reflect the inherent value of ExpressJet or its prospects.

The offer would represent a 68% premium over the company's closing stock price Thursday of $2.09, and would values the company at about $181.5 million.

Jerry Atkin, SkyWest's CEO, said in a letter to ExpressJet officials that the offer constituted a "full and fair price" for the ExpressJet shares.

Meanwhile, ExpressJet says that it has set up a special committee of its board to look at perhaps a better deal with SkyWest. The committee will also assess the potential for a new capacity agreement with Continental, and it will talk to "other potentially interested parties about a potential acquisition of the company at a higher price."

Not surprisingly, shares of ExpressJet have soared on the news, and are now trading about 40% up for the day.

Ticker: (NYSE:XJT)

Technorati Tags: Continental Airlines, ExpressJet, SkyWest

Posted by Holly at 10:27 AM | Permalink | Comments (0)

Look, granted the airline industry is, with the exception of Southwest Airlines, losing money hand over fist this quarter. But it's not losing THAT much.

Perusing the usual headlines online, one would think that Delta Air Lines and Northwest Airlines posted a combined loss of more than $10 billion dollars for the first quarter.

No, they lost money, but not quite that much.

Those totals include some accounting hocus pocus "goodwill" write-offs. More on all that in a minute.

But first -- here is a rundown on the numbers that matter.

Excluding reorganization and special items, Delta Air Lines posted a loss of $274 million, or $0.69 today. Northwest posted a loss of $191 million or $0.78.

Both losses were larger than what analysts had expected. Analysts' forecasted EPS for Delta was a loss of $0.51, while they had Northwest pegged for a 34 cent loss.

So no, neither airline posted good numbers.

As for those big billion dollar write offs -- Delta took a $6.1 billion non-cash charge and Northwest took a $3.9 billion non-cash charge. These are paper losses that are related to the drop in market caps for each stock, and are related to each airline's Fresh Start accounting that both began this spring, as a result of their exiting bankruptcy protection. Essentially we're talking about Monopoly money. Not important in the big scheme of things.

Technorati Tags: airline earnings, airline stocks, Delta Air Lines, Northwest Airlines

Posted by Holly at 2:02 PM | Permalink | Comments (0)

Holy $%(@ Batman.

What a morning.

It took me more than an hour just to get through the emails. Then almost another hour reading all the great earnings news. NOT.

Wow, where do we start?

First, let's take a look at the price of oil. It's on the march again -- and looks like we are going to hit yet another record today unless something major changes between now and the close of trading.

Right now a barrel of crude is trading at about $119.50.

$120/barrel here we come.

But that may not be the worst news out there for the airline industry this morning.

No, United Airlines looks like it took care of that. Then again, AirTran is not too far behind.

First -- United Airlines posted a horrible set of first quarter numbers today. Horrible.

The airline reported a loss of $537 million or $4.45 a share. This did not compare favorably, as they say, to last year, when the airline reported a loss of $152 million or $1.32. Analyst consensus here had been for the airline to post a loss of $3.41 a share -- so it is no wonder why shares are now down about 32% ON THE DAY.

Shares in United, as we post this, are down 34% to 14.24.

Meanwhile, shares of AirTran are being beaten up as well. Shares here are presently down 23%, trading at 3.50.

Kind of strange thing with AirTran. The airline moved up its earnings call on very short notice to today. It was originally scheduled for Thursday.

I figured it was so the airline could come out and reassure investors about its  credit card processing hold back situation, cash levels, etc.

No.

Instead, the airline announced this morning that it was going to do a $65 million convertible note offering -- an acknowledgment that yes, it is short on cash. Oh, and the airline didn't post very encouraging first quarter numbers either.

The airline reported a first- quarter loss of $34.8 million or $0.38. This compares to last year, when the airline posted a profit of $2.16 million, or $0.02.

Analyst consensus here had been for the airline to post a loss of 32 cents, so while the airline missed, it wasn't as big a miss as United. But the results, along with the airline's liquidity issue, was still enough to spook the street.

Finally, JetBlue also reported earnings today, and considering the results posted by its two competitors -- the airline did pretty well.

JetBlue posted a loss of $8 million or $0.04 in the quarter. That is an improvement from a loss of $22 million or $0.12 in the first quarter of 2007, and was three cents better than the analysts' consensus figure of a loss of 7 cents.

Remember though that comps here were relatively easy for the airline -- the result of last year's St. Valentine's Day Meltdown.

If you haven't looked at your favorite airline stock today, I'd recommend caution. As of this posting, every airline stock is down for the day -- with some stocks posing very large declines. Throwing out the aforementioned selloffs in United and AirTran, it's clear that investors are not looking at the proposed Delta-Northwest deal as a trip to nirvana, as shares of Delta are now down 13% to 7.12, and shares of Northwest Airlines are down 15% to 7.74.

Even shares of Continental are not immune to the pressure this morning, as they are now down 12% to 18.30, while shares of AMR are down 11%, trading at 7.30.

Yikes.

Technorati Tags: airline earnings, airline mergers, airlines, AirTran, American Airlines, Continental Airlines, Delta Air Lines, jetBlue, Northwest Airlines, United Airlines

Posted by Holly at 11:41 AM | Permalink | Comments (0)

Here I was, happily writing this week's PlaneBusiness Banter when one of our subscribers dropped me a note with this headline: Another Day, Another Oil Record.

That's what I get for being buried in earnings call transcripts.

But yes, folks, the news is not good.

The price of light crude closed at $117 today in after-hours electronic trading. At the close crude ended the day at $116.69.

Happy weekend.

Posted by Holly at 5:51 PM | Permalink | Comments (0)

In a note this morning, analysts Jamie Baker and Mark Streeter from JP Morgan give their assessment of a potential AMR bankruptcy. Good read. Note also their mention of the fact AMR did the right thing by not foolishly (our words) give back cash to shareholders, ala United Airlines.

What a stupid move on the part of United Airlines' management. We said it was stupid then, but man, does it look even dumber today.

But back to AMR. This is a good summary of AMR's cash situation.

From Jamie and Mark:

"Assessing the Chapter 11 Risk For AMR – Unlike some carriers with less to gain from the Chapter 11 process, AMR remains a reluctant candidate under certain circumstances. Specifically, labor costs are higher than others, there is some (albeit manageable) pension exposure, aircraft savings perhaps are available in Chapter 11 given recent trends, and some unsecured debt remains in the cap structure. Yet much more relevant, in our view, is AMR's liquidity situation as that is likely still the only real trigger for an embracement of the Chapter 11 option. Absent a sharp decline in jet kero prices and/or a material economic improvement and/or additional capital raises and/or no increase in credit card holdback, current jet kero prices imply that unrestricted cash could approach $2 billion in 2009 (inclusive of today's Beacon sale and the associated proceeds). We consider this level to closely approximate AMR's minimum bankruptcy filing threshold. Of the aforementioned caveats, we consider capital raising and the absence of holdbacks to be of critical importance. Beacon is a welcome surprise in terms of timing (we expected a 2H08 announcement) but proceeds were in line with our expectations. Next up could be an Eagle sale or perhaps a British Air lifeline or Heathrow slot-supported borrowings. Keep in mind that AMR likely triggers the >1.4x fixed charge covenant on its $440 million term loan later this year if oil and/or the economy don't cooperate, with early repayment to avoid a default or onerous consent fees a potential use of liquidity. While AMR has thus far failed to disclose any information in regard to its credit card processors, owners of the company are likely to compel management to revisit this policy, in our view. Also keep in mind that if AMR embraces consolidation, that may also pave the way for a positive liquidity event (e.g. an infusion of capital). Our base case remains that AMR avoids a bankruptcy fate, but we simply cannot ignore the potential realities of current fuel and economic conditions in which the company may be forced to operate for a sustained period of time. It wasn't long ago that some were calling for AMR to return cash to shareholders ala United's move earlier this year. Fortunately, AMR's fiscal prudence has given management the benefit of time...for now."

Ticker: (NYSE:AMR), (NYSE:UAL)

Technorati Tags: airline analysts, airline stocks, airlines, American Airlines, United Airlines

Posted by Holly at 11:00 AM | Permalink | Comments (0)

Another nasty day in the energy futures trading pits.

At one point, the price of a barrel of crude oil traded over 115/barrel. But when all the shouting was over, light crude closed at 114.93/barrel, up 1.14 on the day.

This, after news this morning from the Energy Information Administration showed that crude oil inventories dropped down 2. 3 million barrels last week, to 313.7 million.

The consensus forecast of those who follow such things was that we should have seen an increase of 1.5 million barrels.

In addition, the euro hit a new all-time high against the dollar today. Here's the two-year chart tracking the increase in value of the euro to the dollar.

In case you haven't noticed -- when the dollar drops against the euro, you can pretty much count on an increase in the price of oil.

And we all know why that is. With the price of oil pegged to the dollar -- as the dollar drops in value against the euro -- there is then reason for traders to bid the price up.

Yes, this is one of the ugly side effects of the Federal Reserve continuing to lower interest rates. The lower the rates, the more the dollar drops in value compared to other currencies. Meanwhile, commodity prices continue to go higher and higher.

A nice fine economic mess, now isn't it Ollie?

Or as one Wall Street-employed airline analyst said to me off the record today, "Oil scares the living shit out of me."

Yep. Me too.

Posted by Holly at 4:42 PM | Permalink | Comments (0)

Ta-da.

Yes, boys and girls, it's that time again.

And what time is that?

Why it's earnings time!

Leading the charge, or maybe the retreat, AMR, parent of American Airlines, announced their numbers this morning.

The numbers were pretty much what had been expected, as the company reported a $328 million loss for the quarter. While operating revenue was up 5%, operating expenses rose 13.6%. And a big chunk of that was you-know-what. Yes, fuel.

Cost per ASM, excluding all costs associated with the airline's regional airline American Eagle, was up a hefty 15.8%. Excluding fuel, that same number drops to an increase of 3.3% for the quarter.

The airline's earnings call is slated to start in just a couple of minutes.

Tomorrow? We hear from the folks on Denton Drive in Dallas -- Southwest Airlines, as well as the folks in Houston -- Continental Airlines.

All Texas all the time. Yee haw! Bring me that piece of brisket....oh, don't forget that pulled pork sandwich and some slaw while you're at it.

Posted by Holly at 12:59 PM | Permalink | Comments (0)

Yep, oil futures did set a new record today when all the shouting was done.

Crude oil futures closed at 113.79 -- up more than $2 on the day.

More bad news. Oil futures are up as high as 114.08 in after-hours trading.

Posted by Holly at 6:22 PM | Permalink | Comments (0)

At the recent Phoenix International Airline Symposium, Lehman Brothers analyst Gary Chase said something I thought was worth repeating.

Actually he said more than one thing that was worth repeating.

But given the events in the energy markets the last two days, I'm going to pick his comments about how everyone in the industry was talking about "$100 a barrel oil." Paraphrasing, he said something like, "Who says this is going to stay at $100? It seems like some people in the industry are looking at this as some arbitrary cut-off point. That they are revamping spreadsheets to take that number in account. What about $130/ barrel oil? $150 a barrel? Who says that oil is going to continue to hover around $100/barrel?"

As I talked about in a recent issue of PlaneBusiness Banter, he then went on to explain just what massive changes we could begin to see -- when, not if, oil began to move even higher.

Well folks, today the price of oil is inching closer to that $130 mark.

Yesterday oil closed at a new all-time high price of $111.76.

Today, it's up again.

As I post this, light crude oil futures are trading at $113.60, up 1.84 for the day.

Posted by Holly at 11:06 AM | Permalink | Comments (0)

Why am I not excited about this?

I can think of many reasons.

But whether I am excited about it or not -- Delta Air Lines and Northwest Airlines made their not-so-secret engagement official this afternoon -- as the two airlines announced their intention to merge.

According to the various PR releases that were issued, Delta and Northwest will combine in an all-stock transaction with a combined enterprise value of $17.7 billion, creating the nation's largest passenger carrier.

Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own, representing a premium to Northwest shareholders of 16.8% based on Monday's closing prices.

Yes, Delta is considered the acquiring carrier in this one.

Maybe one of the reasons I'm not so excited about this deal (besides the fact that Delta Air Lines' management had to basically bribe their pilot union to go along with the deal, a bribe that included pay raises and a new contract) is that the Northwest Airlines' pilot group was essentially shut out of the party last week -- while Delta Air Lines cut a nice new deal with its pilots.

I talked about this here. I talked about it last week in PlaneBusiness Banter.

I don't understand the rationale in this move with the Delta pilots -- one that essentially puts a gun to the side of the Northwest pilots' head. Go along with everybody else -- you have no choice.

Not surprisingly, not long after all the party balloons were released this afternoon, the Northwest Airlines' pilot MEC issued a release that reaffirmed my earlier misgivings about this bizarre situation.

Some snippets from the release issued not too long ago:

Dave Stevens, the NWA MEC Chairman, stated, 'This agreement clearly disadvantages NWA pilots both with respect to economic issues and seniority list integration. A merger built on this unstable foundation is likely to put the combined airline in a position similar to that of USAirways. A USAirways-style labor relations scenario at the merged carrier, combined with the current and projected price of fuel and the looming economic downturn, is likely to place the Northwest pilots and all other Northwest employees at greater risk than as a stand-alone carrier.'

This merger announcement comes after months of negotiations which had resolved all joint pilot contract issues, but which stalled due to differing views on the integration of pilot seniority. The NWA MEC, on numerous occasions, stated their willingness to resolve the seniority integration by expedited arbitration. The Delta MEC rejected arbitration as a means of resolving the seniority list issue at that time.

'The NWA MEC will use all resources available to aggressively oppose the merger. The risk to Northwest Airlines and to the Northwest pilot group from letting this merger proceed, as it is now structured, is simply too great."'

Ticker: (NYSE:DAL), (NYSE:NWA)

Posted by Holly at 8:02 PM | Permalink | Comments (1)

Hoping to quell potential motivations behind a panic sale in its shares late Friday afternoon, AirTran issued updated financial information concerning the airline's financial status.

The airline said it is in full compliance with the terms of its credit card agreements, and has no holdbacks with any of its major credit card processors.

AirTran also said its liquidity position has strengthened this year, with the total cash and investments balance increasing to $358 million at March 31, up from $326 million at Dec. 31.

The airline said it expects its liquidity to further strengthen during the second quarter.

Ticker: (NYSE:AAI)

Posted by Holly at 8:53 PM | Permalink | Comments (0)

Another day, another day of carnage for airline stocks. Three in particular, including one notable newcomer.

With Frontier Airlines going into Chapter 11 bankruptcy protection, it's no surprise that shares here were down dramatically on the day. Shares ended the day down a whopping 69%, on more than five times the normal volume, as the stock ended trading at 48 cents. (It started the day at 1.57.)

Shares of Mesa Air Group also had another bad day. Shares here were down 17%, ending the day at 67 cents. The stock started the day at 81 cents. Market Cap here is now down to $18 million and change.

And finally, we had a notable newcomer to the share sell-off club today -- another member of the PlaneBusiness Titanic Watch. AirTran shares were simply hammered today, as they lost 35% of their value, closing at 4.13. The stock opened this morning at 6.31.

Again, volume here was more than five times the norm.

What's going on here? My guess is that It's a little thing about credit card holdbacks. The same reason Frontier sought Chapter 11 protection today. Investors apparently don't like the airline's cash position, relative to what could happen if the airline's credit card processor decides to up its reserve amounts for the airline.

Oil? Oil today closed at 110.14/barrel, up 3 pennies on the day.

Tickers: (Nasdaq:MESA), (Nasdaq:FRNT); (NYSE:AAI)

Technorati Tags: airline stocks, airlines, AirTran , Frontier Airlines, Mesa Air Group

Posted by Holly at 3:47 PM | Permalink | Comments (0)

Another day, another huge sell-off in Mesa Air Group shares.

After the stock gained a small bit of footing yesterday, today was another story.

On massive volume of more than 4 million shares (the average daily volume here is about 400K), shares of the beleaguered airline ended the day down 27% to 96 cents.

Yep, the stock has dropped below a buck.

Market cap for the airline is now only $25.8 million.

The airline filed with the SEC Tuesday, saying that it will ask shareholders on May 13 to approve a plan that would allow the company to issue $37.8  million in new stock that can be used to repay the senior convertible notes that are due in June.

Holders can force the company to repurchase the notes on June 16, 2008.

The airline was also the subject of a big two-page spread by Dawn Gilbertson in the Arizona Republic today. PlaneBusiness Banter and our recent awarding of our PlaneBusiness Ron Allen Airline (Mis)Management Award to the Mesa Board of Directors was mentioned in the piece. That column, which was first published in our Mar. 7 issue of PlaneBusiness Banter is publicly accessible here.

According to Dawn,

"Industry newsletter PlaneBusiness Banter last month gave its annual airline-mismanagement award to Mesa Air Group's board of directors, skewering the airline for its financial performance and other woes.

Ornstein dismissed the newsletter and some of its comments about the airline's finances."

I'm speechless. Thanks to my attorney.

Speaking of -- I just realized that I have not posted an update to our ongoing lawsuit with Mesa Air Group here in PlaneBuzz -- although PlaneBusiness Banter subscribers get more or less a weekly update.

I'll do that this week.

Ticker: (Nasdaq:MESA)

Technorati Tags: airline stocks, Mesa Air Group

Posted by Holly at 5:42 PM | Permalink | Comments (0)

Busy day out there in Airlineland today.

First, we have another airline shutdown to report. Last night Oasis Hong Kong Airlines ceased operations.

The airline has applied for a voluntary liquidaton and is seeking new investors, CEO Stephen Miller said at a Hong Kong press conference.

According to Bloomberg, "Oasis began flying to London in October 2006 and added services to Vancouver about a year ago. It initially offered tickets to Gatwick for as little as HK$1,000 one-way, less than 20% the price then charged by Cathay Pacific for flights to Heathrow. British Airways Plc, Air New Zealand Ltd., Qantas Airways Ltd. and Virgin Atlantic also fly between the two cities."

Quote of the day from this shutdown has to be the one from Cheah Cheng Hye, Chairman of Value Partners Group, LTD., which purchased $30 million in convertible notes in the airline last year.

Bloomberg quotes Hye as having said today as a press club luncheon in Hong Kong, "Of course I'm disappointed, but life goes on."

Meanwhile, closer to home, life goes on and the MD-80 grounding continues to affect American Airlines. And not in a good way. As of a few minutes ago, the airline confirmed that it has already cancelled more than 1000 flights today. This, after the airline cancelled 460 MD-80 flights yesterday.

Nasty weather is also expected to roll into the DFW area later today. Then again, with so many airplanes grounded, maybe it won't make any difference.

Finally, just a mention about the free-fall in shares of Frontier Airlines.

The airline's shares closed under $2 yesterday, and today, shares are down again. As we post this, shares are down another 5% or so, hovering around 1.88.

It can't help that Frontier is being mentioned in almost every article we read regarding the fragile financial state of the airline industry.

The airline, which we first put on the PlaneBusiness Titanic Watch a couple of years ago -- once again was posted to the list in this week's Titanic resurrection.

Ticker: (Nasdaq:FRNT); (NYSE:AMR)

Technorati Tags: American Airlines, Frontier Airlines

Posted by Holly at 11:53 AM | Permalink | Comments (0)

This afternoon, after the close of trading, S&P announced that it was removing Mesa Air Group from the S&P SmallCap 600 Index. Aftermarket Technology Corp. (Nasdaq: ATAC) will replace Mesa Air Group.

As those of you who are market watchers know -- being included in an index encourages institutional buyers to buy a stock -- as institutional buyers attempt to mimic the underlying ownership mix of a particular index fund. When S&P selects a stock for inclusion in a fund, institutional investors usually flock to the stock, as they attempt to mimic the underlying stocks in a particular index.

Conversely, when a stock is bumped from an index, you tend to see institutions bail out of the stock. We'll see what happens tomorrow.

Meanwhile, Mesa had yet another rough day today on Wall Street, as shares ended the day down 13%, closing at 1.23. The stock collapsed last week -- losing 41% of its value, closing Friday at 1.41. Trading in Mesa shares was extremely heavy again today.

S&P noted in its release this afternoon that Mesa's market cap is now down to $33 million.

Ticker: (Nasdaq: MESA)

Posted by Holly at 7:06 PM | Permalink | Comments (0)

Following up on the news that Delta Air Lines intends to drop Mesa Air's Freedom Airlines as a regional partner, effective May 3, today the airline received more bad news.

One, Mesa Air Group led the DOT's airline consumer travel report in the number of cancellations for the month of February. Essentially, more than one of every ten Mesa flights were canceled during the month, as the airline posted a 10.6% cancellation rate.

American Eagle was the closest airline to Mesa, having canceled 7.5% of its flights for the month.

On another front, Mesa Air Group reported traffic numbers for March today, and those were not particularly pretty either.

Mesa reported a nearly 21%  decrease in the number of passengers it carried in March.

Mesa saw its revenue passenger miles decline 17% while available seat miles were down 14%. Load factor declined 3.2 points to 75.49%.

The news was not well received by those folks who own Mesa stock, as shares dropped 18.5% to 1.81 on very heavy volume. This is a new 52-week low for the stock.

Interestingly, Monday, Standard & Poor's equity analyst Jim Corridore  upgraded Mesa to "hold" after competitor Aloha ceased business. In that note, Jim said,

"We think MESA has the wrong strategy in its Hawaii operations, is unlikely to see significant growth in its regional operations and is at risk of significant judgments in the Aloha and Hawaiian Airlines lawsuits. We also believe that the company has a lack of growth prospects and that there are issues regarding management credibility. However, with Aloha Airgroup Inc. ceasing operations, we are raising our 12-month target price on Mesa by $1 to $3, 6.7X our '08 EPS estimate of $0.45, still below peers. Now trading below our revised target price, we would hold the stock."

But yesterday, Jim cut the airline back to "sell" because of the Delta decision to not continue its contract with Mesa's Freedom Air, which accounts for 19% of Mesa's current business. Jim cut his target price to $2.

Ticker: (Nasdaq: MESA)

Technorati Tags: American Eagle, Jonathan Ornstein, Mesa Air Group

Posted by Holly at 4:59 PM | Permalink | Comments (0)

With about an hour and a half to go before the U.S. Bankruptcy Court closes in Hawaii, sources tell us that Aloha Airlines is set to file for bankruptcy protection before the end of the day.

More information as it becomes available.

UPDATE: Courts will be open in Hawaii on Friday. Filing could be made tomorrow.

Technorati Tags: Aloha Airlines, bankruptcy, Hawaiian Airlines, Mesa Air Group

Posted by Holly at 9:00 PM | Permalink | Comments (0)

Today was "sell the commodities day" on Wall Street.

All the nervous nellies who climbed into oil futures, gold, and other commodities over the last week as the financial stocks went through their personal meltdown, decided, apparently, that today it was time to unload them.

That was why, when it was reported that crude oil inventories did not increase as much as had been expected in the U.S. last week -- oil prices declined anyway.

Usually, we'd see the price rise.

For the day, the price of a barrel of light crude was down almost $5, ending the day at $104.48.

Posted by Holly at 4:41 PM | Permalink | Comments (0)

Today we got more details about the route cuts that Delta Air Lines has put into place -- all part of the airline's efforts to cut costs. The airline also announced that it had put another  $10 fare increase into place. This comes on top of the $50 roundtrip fare increase that United Airlines initiated last week. Continental Airlines quickly matched that increase last week and as of today, the increase appears to be sticking.

Meanwhile, on the route front, Delta announced today that it has slashed its flights into Orlando. The airline announced that by June, the average number of seats it flies into Orlando will decrease by 45% compared to June 2007.

The airline said that it intends to "streamline its network" by reducing marginal routes, and reducing the number of point-to-point flights.

For John. Q. Passenger looking to fly this summer I think it's pretty clear what they are going to find.

Fewer flights.

Fewer non-stop flights.

Reduced frequencies on particular routes, particularly low-yielding "leisure" routes.

Fewer regional flights (depending upon the routes.)

Oh, and the flights they do find? The fares are going to be higher.

With the end of the first quarter almost upon us -- will we hear of more cuts and route changes from other airlines before we hear details of first quarter earnings?

Yep.

Posted by Holly at 4:34 PM | Permalink | Comments (0)

With a nod to our guest columnist Godzilla's rather dire view of the world on Monday, we present -- Ta-da! -- the JP Morgan Chase Transportation Conference. Live from New York -- it's analysts Jamie Baker and Mark Streeter.

Time to cue up the band.

Well, then again. Maybe not.

Hell of a time for an airline investment conference, eh?

But hey, it is what it is. And this morning Delta Air Lines' CFO Ed Bastain took advantage of his New York appearance at the conference to announce that Delta now plans to shrink its domestic passenger capacity by 10%, not 5% as originally planned in 2008, the airline plans to cut at least 2,000 jobs, and it also plans to offer severance packages to a total of 30,000 employees.

The moves come as the airline attempts to deal with the recent run-up in the price of fuel.

According to a memo that was circulated to airline employees Tuesday morning, one part of the voluntary severance program is for employees who are already eligible for retirement or for those whose age and years of service add up to at least 60, with 10 or more years of service.

The second part of the voluntary severance offer is an "early-out" offer for frontline employees — such as flight attendants and gate and ticket agents — with 10 or more years of service and for administrative and management employees with one or more years of service.

Posted by Holly at 1:23 PM | Permalink | Comments (0)

I don't know how else to look at the news this afternoon that Global Aero Logistics CEO Subodh Karnik has resigned.

Global Aero is the parent company of ATA, World Airways and North American Airlines.

The new CEO of Global should be a familiar name. He's the ex-CFO of Southwest Airlines and ex-CEO of ATA -- John Denison. And, as we all know, John is very close to current Southwest CEO Gary Kelly.

People tell us this afternoon that we could hear about what Southwest is going to do with ATA's international certificate in as little as 48 hours.

Ticker: (NYSE:LUV)

Technorati Tags: ATA Airlines, Southwest Airlines

Posted by Holly at 6:30 PM | Permalink | Comments (2)

When is an investment bank not a bank?

When is an investment bank just like a bank?

There are legal differences in terms of how one is regulated and how one is not.

Apparently this weekend the Federal Reserve decided that it didn't matter if Bear Stearns was an investment bank or not.

It was bankrupt, and it had to be salvaged, for fear its failure could cause a "run on the banking system." (Or so said may of the Wall Street watchers today.)

Enter JP Morgan Chase, which last week had responded to the first Fed plea for assistance in regard to Bear Stearns.

This time, JP Morgan got a sweet deal at about $2 a share, and Bear Stearns equity holders got left holding the proverbial empty bag. But the bond holders did just fine -- as JP Morgan picked up the firm's bonds. And the Feds are helping to guarantee them.

Sweet deal.

Now that all the excitement is over -- what's the collateral damage?

The fact that Bear Stearns was insolvent enough to warrant such a drastic move.

Tends to negate those who have been saying of late that the credit crunch and the liquidity problems facing financial institutions had "run its course" and was leveling out.

Nah. We haven't seen the worst yet.

There is one bit of direct collateral damage to the airline sector. Frank Boroch, who I thought did a good job analyzing the airline industry for Bear Stearns is no doubt out of a job. JP Morgan Chase already has a fully-staffed airline research group, both on the equity and the debt side.

In terms of the bigger picture and how all this financial angst affects the airline sector -- we saw it in big red numbers today -- across the sector's stock prices. However, many of the airline stocks actually picked up some ground from where they were earlier in the day.

Still not good though.

Just looking over the carnage we see that shares of US Airways lost 10%, closing at 7.45, taking the biggest hit for the day, while shares of ExpressJet, were, interestingly, up 10% on the day, closing at 1.74.

In between we had a long list of losers, including AMR which lost 3% on the day, closing at 8.95, Delta, which dropped another 4%, ending the day at 9.23, Northwest, which lost a healthy 6%, dropping back to 8.92, United Airlines, which lost 8%, closing at 20.91, and Continental Airlines, which dropped back 5%, closing the day at 18.87.

Ticker: (NYSE:AMR), (NYSE:LCC), (NYSE: CAL), (Nasdaq:UAUA), (NYSE:DAL), (NYSE:NWA).

Technorati Tags: airline analysts, airline stocks, airlines, American Airlines, AMR, Continental Airlines, Delta Air Lines, JP Morgan Chase, Northwest Airlines, United Airlines, US Airways

Posted by Holly at 3:54 PM | Permalink | Comments (0)

Red Letter day today on Wall Street. For two reasons.

One, the price of gold topped $1000/ounce earlier today.

But more importantly -- at least to those of us who like to fly the those things with wings that consume great quantities of jet fuel -- the price of a barrel of crude oil broke the $110 mark today.

Crude closed at $110.33.

How does that story begin....."It was a dark and stormy night...."

A recession and $110/barrel oil prices. A perfect dark and stormy night for our friends --  the airlines.

In other news, shares of Mesa Air Group hit a new 17 year low today. (Adjusted for splits.) The last time shares were this low in the airline were in 1991. Shares in the airline closed today down 3%, to 2.24.

Shares of US Airways have also been hit hard this week. Today shares of LCC were down another 3%, closing at 8.76. Yes, you read that correctly.

Shares of Northwest are not having a good week either. Shares here were down 4% today, closing at an anemic 9.86 while shares of its hoped-for running buddy, Delta Air Lines, were up 4% today, closing at 10.52.

Meanwhile ExpressJet shares managed to pick up 2% today. But the shares here continue to struggle. Really struggle. Shares closed here today at 1.77.

Ticker: (Nadsaq:MESA), (NYSE:XJT), (NYSE:NWA), (NYSE:DAL), (NYSE:LCC).

Technorati Tags: airline stocks, airlines, Delta Air Lines, ExpressJet, Mesa Air Group, Northwest Airlines, US Airways

Posted by Holly at 8:11 PM | Permalink | Comments (0)

From JP Morgan's Jamie Baker in his research note this morning in which he downgraded Continental, Delta, Alaska, American, Northwest, US Airways and United Airlines: "Even a best-ever recessionary demand scenario [in 2008] results in a $4 billion industry loss."

"And if demand trends mirror prior recessions, a $9 billion loss can't be ruled out," he added. "In that scenario, cash becomes scarce for many."

He added,

"It’s Just Math. Industry fuel likely to be some $25 billion higher than 2002, overwhelming the $7 billion in labor savings wrought by the Ch.11 cycle. Consolidation may help longer-term assuming labor doesn't intercept most of the benefit, but getting there may prove scary. Aggressive 2H capacity cuts may offset part of the expected pain, though we don't believe the industry can move quickly enough to put much of a dent in forecasted losses."

Technorati Tags: airline analysts, airlines

Posted by Holly at 10:56 AM | Permalink | Comments (0)

This week we've now seen downgrades and dire comments from both Credit Suisse and, as of this morning, Jamie Baker with JP Morgan.

But more potentially troubling to the airline sector than the expected stock price worries, given the higher price of oil, Standard & Poors said yesterday that they were now taking a hard look at the credit ratings of all the major airlines that they track. That would be a total of ten.

Currently, three of those airlines have positive outlooks, six have stable outlooks, and one has a negative outlook.

In particular, the agency says that it is taking a hard look at its "positive" outlook ratings for AMR, Delta Air Lines and US Airways.

S&P noted that except for Southwest Airlines and Alaska Air Group, the airlines “have a relatively low proportion of their 2008 fuel needs hedged, because hedging high and volatile fuel prices is expensive and may require posting cash collateral.”

S&P also noted that while airlines have taken advantage of strong demand and raised fares to offset higher fuel prices, it expects that this trend will stall across the industry in the face of softer demand, likely first on domestic routes and then in international markets.

In addition, it pointed out that though US airlines have built up their cash and in a few cases, bank liquidity over the past years as a cushion against adverse conditions, most of them have at least part of their short-term investments in currently illiquid auction-rate securities.

The rating service says it expects to complete its review by the end of the month.

Tickers: (NYSE: LUV), (NYSE:AMR), (NYSE: DAL), (NYSE: LCC).