As most of you know, today was a national holiday, the observance of Martin Luther King’s birthday. As a result, I have no bad news or good news to report concerning U.S. airline stocks because the equity markets were closed.

Having said that I would advise that you batten down the hatches tonight.

Why?

Because in the rest of the world stock markets fell sharply today. In fact, some declines were as steep as those we saw post – September 11.

Meanwhile, U.S. stock index futures reflected these heavy declines in the overseas markets, as they ended the day down more than 4% — a harbinger of a highly probable sharply lower opening for stocks on Tuesday.

Yep, looks like there might be another reason, besides the bone-chilling cold, to get out your own Ratty Old Bear Suit out of the closet this week.

Just in case anyone has been sidetracked this week with delusions of merger madness, Fitch’s latest comments on the airline industry should serve to bring all you poor souls back to earth.

Here is a short take on their latest full report on the airline industry. The complete report, Airline Credit Navigator,  can be accessed here.

The largest U.S. airlines enter 2008 with a more uncertain operating environment

threatening to undermine further credit quality recovery, according to Fitch Ratings.

Developments in the fourth quarter of 2007 – notably, spiking

jet fuel prices and growing concerns about U.S. macroeconomic

risk highlighted the industry’s extreme vulnerability to

rapidly changing operating conditions and external shocks. As a

result, Fitch views 2008 as a year of increasing financial

uncertainty for the industry, with all U.S. carriers focusing

more attention on disciplined capacity management, strict

non-fuel cost control and liquidity conservation.

‘Changes in cash flow profiles will be important to monitor

over the coming months in light of the deteriorating operating

outlook for the industry,’ said William Warlick, Senior

Director, Fitch Ratings.

The timing and direction of moves towards industry

consolidation will probably remain the issue of greatest

interest to creditors during 2008. Some merger-related

synergies are clearly achievable in most legacy carrier

combinations, particularly on the revenue side with post-merger

capacity rationalization supporting long-term passenger yield

growth. Still, execution risk related to industry merger and

acquisition activity remains high in light of organized labor’s

desire to capture a greater share of the financial upside in

any prospective merger transaction.

The openness of debt capital markets moving into 2008 will be a

critical factor in determining whether legacy carrier deals can

be financed efficiently without layering on substantially higher

debt service obligations after the mergers are closed.

The ‘Airline Credit Navigator’ is a periodic report by Fitch

Ratings designed to provide investors with a summary of key

airline industry credit and operating trends, recent industry

financial developments, liquidity, cash flow, fleet plans and

financing activity. The report focuses on eight of the largest

U.S. airlines, seven of which are currently rated by Fitch. Key

credit and operating trends for each of the eight airlines are

provided in the report.

American Airlines kicked off the fourth quarter/year end earnings season today, reporting a $69 million loss.

The airline’s  $0.28  loss compared with year-earlier net income of $17 million, or $0.07 cents.

No real surprise here.

Excluding special gains and losses, the airline posted a loss of $0.74 a share, which compared favorably to a forecasted loss of $0.76 a share, according to estimates of 11 analysts polled by Bloomberg.

The boogie man here was fuel. Fuel exceeded labor costs as American’s biggest expense last quarter, and will push costs higher this quarter and in 2008, the airline said in its earnings release. CASM for the mainline airline was up 10% for the quarter, while RASM increased 5.5%.

Other tidbits from the airline’s results included the fact that the company’s pensions are now funded at 96%, and the airline has now reduced its total debt down to $15 billion, with the level of net debt now at $11 billion.

In an internal communication to employees this morning, CEO Gerard Arpey announced:

“While our 2007 earnings were not enough to trigger profit sharing, I’m very pleased to share with you that in recognition of the collective effort of the people of American Airlines, and the special circumstances that we battled in 2007, the AMR Board of Directors has approved a one-time payment under the Customer Service Component of the Annual Incentive Plan (AIP) of $800 for every eligible employee. Checks will begin arriving in the workplace today, and continue over the next few days. Please pick up your check from your supervisor along with our thanks and appreciation for a job well done.”

Nice gesture, but it would have been better had it come a year earlier. Given the timing now, and all that has transpired in the interim — the gesture loses a lot of the positive impact it could have had — had the company given employees some type of special recognition bonus proactively, ahead of last year’s management level bonus payments.

Tomorrow? Continental Airlines reports in.

We’ll talk about both airlines  and their earnings calls in-depth in this week’s PBB.

Ticker: NYSE:AMR

Hello everyone.

Warning. I’m on pain pills for a tooth I just had to have repaired, so if I say anything strange, that’s my excuse.

The things with wings are having themselves a nice busy week this week with Delta now actively progressing on their quest to find the perfect mate — and it looks like the process is more and more resembling a 60 second round-robin dating party. Okay, nice to meet you too, now on to the next potential partner. Okay, thank you, now let’s make a decision.

I’m going to talk more about this in this week’s PBB, but I think the thing we all have to remember in looking at all of this craziness is this — what do you think the main motivating factor is in all of this activity?

Oh, there is the improved route structure theory, economies of mass theories, the normal “bigger is better” theory, the “if we don’t do this now, the new regime in Washington might not let us do it later” theory, and so on and so on.

My take on this is pretty simple. It’s really not that complicated.

It all comes down to making sure an airline has enough capital in its cupboard — for when times get even tighter.

Or to put it another way, about the only way an airline can effectively raise capital these days is by merging. The deal involving US Airways and America West is the most recent living, breathing example of this.

With airline stock values plummeting and the recessions signs continuing to sprout on every street corner — those who are strategic thinkers are thinking, “We need to get the money in our corner now — while we can”.

And the easiest way to do that is to merge with another airline.

It has nothing to do with which deal “works” the best. It has nothing to do with which airline has the best “fit” with another in terms of fleet mix.

What it has to do with is this — which deal is going to give Delta Air Lines the best infusion of capital going forward.

While I have said all along I think the airline has had its sights on Northwest for more than a year — the economic facts also suggest to me  that if the money behind a potential United deal is better — that could swing the vote in the favor of the guys in Chicago.

Wall Street Journal 787 Delay Story: Another Story Without Proper Attribution

Today the Wall Street Journal is going with a story that opens thusly:

Jan. 15, 2008

Boeing, already six months behind schedule on its new 787 Dreamliner jet program, is close to announcing additional delays that could hurt its ability to deliver as many airplanes as promised during the initial year of production. The jet maker has faced difficulties in getting the first plane ready to fly, and now the 787 may not make its first flight until June, according to people familiar with the situation.

“People familiar with the situation?”



I’ll tell you why this bothers me. And it bothers me big time. It seems to me that the WSJ is, more and more, taking stories that are broken by bloggers or internet publishers, and then not giving them proper attribution. I’ve noted this problem  in the past with stories from PlaneBusiness Banter, and here’s another example.

Last week Flightblogger, who does a bang-up job in following all things Boeing, was the first to post a note about the latest delays. I noted his comments in last week’s PlaneBusiness Banter, USA Today’s Ben Mutzabaugh gave him props in that paper’s Today in the Sky blog, the Seattle Post-Intelligencer noted his comments, and other news outlets also cited his post.

But no, not the Wall Street Journal.



I think it’s way past time for the WSJ to establish an editorial policy which gives credit where credit is due. No matter who breaks the story and in what medium.

Because the problem here of course is this — if the WSJ believes a story, or material to be factual to the point of publishing it — then they need to give proper attribution as to where they got it.

Period.

Otherwise, some people could think they are trying to make it appear as though their reporters are actually doing something, rather than merely repackaging the work of other writers, bloggers, and journalists — before posting it on the WSJ site, or printing it in the printed version.

Frankly, I thought we were past all this nonsense. Even the New York Times now openly cites bloggers, websites, and other “non-traditional” media sources in their stories.

Ticker: Boeing, (NYSE:BA)