Monthly Archives: October 2008

American Plays Catch-Up Big Time With Boeing 787 Order

In addition to announcing earnings today, American Airlines announced that it has entered into a purchase agreement with Boeing, under which American intends to acquire an initial 42 Boeing 787-9 aircraft scheduled for delivery beginning in 2012 and ending in 2018, with the right to purchase up to 58 additional 787 aircraft that may be scheduled for delivery beginning in 2015 and ending in 2020.

Brace to Get Parting Gift of $2.4 Million

United said in an SEC filing late Friday that Jake Brace, United Airlines’ CFO, will be paid $2.42 million after he retires at the end of the month.

Brace will receive two times his $653,125 salary and $555,156 target bonus.

In exchange, Brace agrees not to take a position with a competing airline for the next two years “without consent of the company.” (No, I’m not saying a word, although the temptation is great.)

It’s so nice that Jake will be paid this lovely parting gift. Dontcha think? I’d hate to think he was going to leave the airline empty-handed.

Wall Street Makes History, Airline Stocks React Erratically, Oil Drops Significantly

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It’s official.

The Dow Jones Industrial Average posted its worst week in history this week.

The average had its worst week on record in both point and percentage terms, as did the Standard & Poor’s 500 index.

The Dow Jones Industrial Average, after starting the day down more than 700 points, finished down only 128 points, but it was one wild road in between.

Over the last eight days, the Dow has lost just under 2400 points.

As for airline stocks, it was also a volatile mix today as several airlines stocks posted record-breaking one-day gains. But we had some losers in the bunch as well.

On the huge plus side for the day, shares of Republic Holdings picked up a whopping 29% today. Yes, you read that correctly. Shares here closed at 8.94.

But wait — we had one airline stock do even better. Shares of Alaska Air Group shot up 31% on the day, closing at 18.80.

Shares of US Airways also had a great day, as shares here were up 27%, closing at 4.60.

AMR, parent of American Airlines saw their shares pick up 20%, closing at 8 bucks even.

AirTran also had a good day, as shares here picked up a nice 18%, closing at 1.96.

Shares of SkyWest didn’t have a bad day either, as shares here shot up 17%, closing at 13.75.

On the loser side, we really just had a small handful of notable drops for the day.

Shares of Pinnacle were down 10%, closing at 2.37, while shares of Mesa dropped back 15%, closing at 25 cents.

Embraer and Bombardier didn’t have good days either — not surprising considering the action in the market as a whole. Embraer shares closed down 8%, ending the week at 17.20, while shares of Bombardier closed down 16%, ending the week at 3.50.

And, last, but by no means least — where did crude and jet fuel end up today?

Crude futures closed at 77.70, down 8.89 on the day, while the average spot price for jet fuel closed at 2.33, down 21 cents on the day.

Taken by itself, this would be great news for the things with wings.

Unfortunately, there is that elephant that is blocking the view to the nice new HD flatscreen — the rest of the financial/economic mess on a worldwide basis and the recognition, finally, that no, this is not just a little “subprime” mortgage problem centered in California, Arizona and Florida.

View from the Ledge: A Reader Reports on the Closing Bell While Enjoying the President’s Club

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“Hi Holly, Its 2:05pm on Friday MDT, 4:05 pm EDT. I am sitting in the President’s Club waiting for a delayed LH. The delay allowed me to witness a spectacle. At about 1:59 people started getting up and gravitating towards the TV screen by the bar. It wasn’t a scandal, it wasn’t an assasination, it was the closing bell in New York. The bell rang at 2pm local and half the room walked over to see the news (flat). You’d think the Superbowl was on though people’s faces weren’t quite that excited.

Thought it worth noting to you given your comments on PlaneBuzz.

Interesting times.

Try and have a good weekend.”

Airlines, Jet Fuel and The Market Meltdown: What The Heck Is The Problem?

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It’s Friday and it’s already been another rough day in the financial markets.

You guys are smart folks. You knew this was going to be the case.

The Dow Jones Industrials are now down another 275 points or so, after a sharp drop of almost 700 points at the open.

Okay, enough of the bad news.

Yesterday analysts Jamie Baker and Mark Streeter with JP Morgan issued a research note in which they wrote, “We’ve never witnessed such a disconnect between fundamentals & equities. True, AMR & CAL treaded water for a month after DAL & NWA filed, despite Ch11 plans to cut capacity by an amount sufficient to restore industry profitability. But nothing we’ve experienced comes close to explaining a recent $5 share price for United, considering we expect it to earn something similar (untaxed) in 2009.”

As I talked about in PBB this week, with the price of oil dropping like a rock, there is no logical reason for the corresponding battering of airline stocks.

And yes today, the price of oil continues to drop like a rock. As of this posting, the price of crude is trading at around $80 bucks and change. Yes, $80.

And no, this is no mystery. If the world is heading into a recession, the price of oil has to come down. It’s simple economics. No voodoo speculative manipulation involved in this drop whatsoever.

In Jamie and Mark’s note, they also said, “Sure, oil could ruin the forecast – We readily admit that unprecedented demand declines coupled with $140 oil would support multiple bankruptcies. But it is difficult for us to reconcile the implied global economic backdrop of this scenario with sharply higher oil. Always a risk, but a poor base-case assumption, in our view.”

They continued, “Simply put, we are having a tough time modeling losses – Fundamentals appear to be going one way, equities the polar opposite. Perhaps seasonality comes to the rescue, perhaps the flight to quality eases and redemptions moderate, or perhaps investors simply need more time to accept the profit implications of an industry rolled back to its 1998 size while enjoying fuel prices below those of last year. In any event, our conviction in 2009 profitability and bullishness for legacy equities has yet to waver and exceeds that of any prior point in our career.”

I agree.

Then again, with what is going on with Wall Street right now, maybe the thought of airline stocks being a potentially screaming “buy” opportunity is the least of what is top of mind of most investors right now.

Food For Thought: Airlines and Pensions

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I had an errant thought yesterday as I watched the Dow fall and not get back up again.

And that thought concerned pensions. And the airlines that still have pension plans for their employees.

Remember that the last time the airline industry had to deal with the “pension issue” was following the market meltdown that followed the “internet bubble” that burst in 2000.

(If you note a bit of sarcasm in that description…good.)

Going into 2001 and 2002, airlines were suddenly looking at pension plans that required more and more in cash infusions — because the value of the underlying securities in the pension funds had declined so precipitously.

Rewind the clock. Start it over again.

We are now looking at exactly the same situation. With equities in a free-fall — all pension funds are gasping for air.

Tuesday, Congress’ top budget analyst estimated that Americans’ retirement plans have lost as much as $2 trillion in the past 15 months. And you can add more to that total, because you can bet his number crunching did not take into consideration the free fall in the market during the last two weeks.

Public and private pension funds and employees’ private retirement savings accounts – like 401(k)’s – have lost some 20% overall since mid-2007, said Peter Orszag, the head of the Congressional Budget Office.

So just a little red flag for the radar screen.

Airlines such as American Airlines and Continental Airlines that have worked hard to keep their employee pension plans in place are going to face tough times ahead — as pension plan funding requirements balloon.

Then again, an airline like United, which was successful in blowing up its employee pension plans as part of their bankruptcy proceedings, won’t have to worry.

Something just doesn’t seem right about all this, does it?

Sun Country Airlines Files for Bankruptcy Protection


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Sun Country Airlines, and its parent company Petters Aviation both filed for Chapter 11 bankruptcy protection today.

“We were forced to take this action as a result of recent events at Petters Group Worldwide,” Sun Country CEO Stan Gadek said in a prepared statement.

The move comes after former Petters Chairman Tom Petters was arrested last week on charges of mail fraud, wire fraud, money-laundering and obstruction of justice.

Wall Street Sends Politicians a Message: We Run This Hood

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In case you’ve been occupied with feeding the cat, doing Sudoku, or eating a late lunch, the world financial markets are one big mess today.

So much for the power of politicians in Washington to snap their fingers and hope that the rest of the world simply agrees to sit back and let Treasury Secretary Hank Paulson do his “magic.” A couple of problems with that $700 billion gift from the U.S. taxpayers that Congress okayed last week. One, it’s going to take weeks before any of that buy-back of crappy debt even begins. Two, credit markets are frozen NOW. Third, now world markets are starting to unravel.

Which brings us to the big news if you are an airline investor, or someone who simply owns shares of your own airline that you work for.

Not only are world financial markets one big mess today — but airlines stocks are getting hit very hard.

You’d think that with the price of oil now down below $90 today that investors would be snapping up airline shares right and left.

After all — think of the potentially lethal profit cocktail we have going on — sharply lower fuel costs on their way, coupled with sharply reduced capacity. It would seem like the perfect recipe for higher airline stock prices.

Unfortunately that is not how the market is thinking today. Then again, the market is not thinking very clearly about much of anything. This is definitely one of those days when fear rules.

As for the airline sector, the biggest decliners as of this posting include: United, which is down 18% at 6.68, Continental Airlines, down 20% to 12.15, Republic Holdings down 16% to 7.86, AMR, parent of American Airlines, down 18% to 7.65, and US Airways, down 14% to 5.58.