Monthly Archives: March 2008

Southwest Airlines Starts To Make Move on ATA

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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)

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Bear Goes Bye-Bye; Airline Stocks Wilt

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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).

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This Week’s Issue of PlaneBusiness Banter

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Hey guys. I’m sitting here and it’s nine o’clock, while all you poor souls on the East Coast are looking at midnight.

I hate daylight savings time. Especially when I am in a West Coast time zone.

Anyway, that is beside the point.

This week’s issue of PlaneBusiness Banter is sitting in front of me, and it is finished. Yep, we’re not only talking about airlines this week, we’re talking about the Federal Reserve bailing out banks. We’re talking about ExpressJet’s earnings call. We’re talking about a horrible week for the airline sector this week on Wall Street. We’re talking about auction-rate securities and which airlines are more at risk than others. Never a dull moment.

I’m going to post this week’s issue in the morning — as we had an unexpected missive arrive late today that I want to include in this week’s issue, and it’s going to require,  well, another set of eyes, before I can post it.

So go back to your Friday night beers and we’ll talk to you in the morning. Well, unless you are on the East Coast, and who knows when I’ll talk to you next. That’s what you people get for living so far East.

Visions of Republic Airlines and Northwest Airlines Pilots Dance In my Head

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News out this morning that the US Airways’ West pilots (the old America West pilots) have now decided to go their own way.

Thomson Financial reports that US Airways  management said today that  it has been notified by America West pilots that they wish to pursue separate labor contract negotiations from US Airways pilots.

“Since the America West-US Airways merger was consummated, more than 400 US Airways East (former US Air) pilots have been able to upgrade to captain positions, yet less than 40 US Airways West (former America West) pilots have been offered the same opportunity,” said Captain John McIlvenna, chairman of the union leadership group, highlighting one of the main grievances of the America West pilots.

US Airways said America West pilots have also begun separate negotiations with the airline on the rules and conditions related to flying future Airbus A330-200 widebodied planes.

Is this something unusual? Not really. Remember that, even today, restrictions on who flies what aircraft are still in effect at Northwest Airlines – a lingering after-effect of that airline’s merge with Republic. Pilots on both sides in that merger finally agreed on a workable merge agreement — but only with certain “fence” provisions going forward.



Meanwhile, voting begins in about a week on representation of the pilot group at US Airways — as the US Airways’ East bloc of pilots push to oust ALPA from the property. The alternative union organization, USAPA, was created after an ALPA arbitrator ruled on the seniority question concerning the two pilots groups last May. The US Airways East pilot group claims that the award is not “fair” and, as a result, now seeks to remove ALPA as the pilot’s labor representative.

Just more fun than you can shake a stick at.

Ticker: (NYSE:LCC)

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Mark It Down — $110 and Change for Oil; MESA, Other Airline Stocks at Record Lows

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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).

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US Airways’ Union Negotiations: One Contract Down, Three To Go

US Airways and its mechanics union have reached a tentative contract agreement. The airline said Wednesday that the deal will see mechanics receive a 10% raise once the contract is ratified.

In addition, these raises will be followed by 3% raises every year until 2011. New overtime rates were apparently also negotiated. A pension plan is also going to be offered to members.

IAM spokesperson Joseph Tiberi was quoted in an Associated Press story as saying, “After two bankruptcies at US Airways and more than two years of negotiations after the merger, employees are finally seeing something positive.”

IAM also represents the fleet service workers at the airline. That group and the airline came to terms on a new contract last summer. However, union members rejected the deal. New negotiations are now in progress on that contract.

Southwest Airlines Grounds 41 Aircraft for Inspections

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Talk about timing.

I walk into the LABTA meeting today to give my speech and someone who is here, who lives in Dallas, tells me that Southwest has grounded 41 aircraft.

Nothing like a little bit of juicy news to go with my rubber chicken. (Actually it was turkey.)

Now that the speech is history and I’ve read through the news reports and Gary Chase’s comments from Lehman Brothers, I don’t think I need to worry about whether or not my flight tomorrow on Southwest will be canceled or not.

It appears that Southwest informed the FAA about the decision to ground the jets this morning.  The airline said it had grounded 44 of its Boeing jets to inspect for possible structural damage.

According to the Dallas Morning News, Linda Rutherford, Southwest spokesperson, said the airline identified 44 airplanes from its Boeing 737-300 and 737-500 fleets that needed inspections of the aircraft skin above and below the windows along the fuselage

Of those, 38 were taken out of service Wednesday for the inspections, which take about 90 minutes per airplane, she said. One of the 44 had already been retired, and five were already undergoing other maintenance work, she said. As of 2 p.m. Wednesday, the airline had finished inspections on 19 aircraft and had returned them into service.

The airline says it should be back to its full schedule on Thursday.

How costly is this interruption going to be for the airline?

According to Lehman analyst Gary Chase, not very.

Chase said in a note this afternoon,

“The bottom line?

We believe the impact from this move will be negligible on value for

Southwest and for potential competitors.  We expect this issue to be

resolved shortly with no material impact on operations, costs, or

revenue other than for a very short period of time.”

Best Case for the Airlines in 2008? $4 Billion Loss …..Worst Case? $9 Billion

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.”

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