Major-Airline Bankruptcy:It's When, Not If, Says J.P. Morgan

[Snowgoose]

Lovely

http://money.cnn.com/news/newsfeeds/art ... RTUNE5.htm

NEW YORK (Dow Jones) -- J.P. Morgan downgraded Continental Airlines to underweight from neutral Monday, citing the stock's valuation.

The investment bank lifted its rating on Alaska Air and JetBlue to neutral from underweight, citing their lower risks of bankruptcy due to record-high jet- fuel prices and their ability to withstand a "war of attrition."

Though investors, management and analysts may talk about airlines acting collectively to reduce capacity to firm up revenue, the reality is that they are more likely to dig in and try to out last each other, according to the J.P. Morgan analyst note.

As evidence, the investment bank noted that capacity cuts thus far have fallen far short of what executives have said are necessary, making bankruptcy -- even among the so-called legacy carriers -- a question of when rather than if.

"There will be blood," wrote analyst Jamie Baker in the research report, forecasting a 2008 operating loss for the industry of $7.2 billion, wider then a prior forecast of a loss of $4.6 billion. That would be an all-time record for the industry, he noted.

J.P. Morgan also listed the airlines it thinks are at Chapter 11 risk, from lowest to highest: Southwest Airlines (LUV), Alaska Air Lines (ALK), Delta Air Lines (DAL), AirTran (AAI), Continental (CAL), JetBlue (JBLU), American Airlines parent AMR Corp. (AMR), United Airlines parent UAL Corp. (UAUA), Northwest Airlines (NWA), and U.S. Airways (LCC).

Further, credit-card companies can represent a much more significant risk to airlines than debt as their ability to impose unilateral holdbacks can exact heavy tolls on liquidity and cash balances, J.P. Morgan said.

[invertedattitude]

Further, credit-card companies can represent a much more significant risk to airlines than debt as their ability to impose unilateral holdbacks can exact heavy tolls on liquidity and cash balances, J.P. Morgan said.

That should be illegal.

[tsgas]

Actually it would be is illegal in Cuba and China but in a capitalist country companies are responseable to their shareholders.

[iflyforpie]

http://money.cnn.com/news/newsfeeds/art ... RTUNE5.htm


As evidence, the investment bank noted that capacity cuts thus far have fallen far short of what executives have said are necessary, making bankruptcy -- even among the so-called legacy carriers -- a question of when rather than if.

Since when have legacy carriers been immune to bankruptcy? Where's Pan Am? What happened to NWA and UA recently? SWA seems to be in the best position, but it's only been around since the 70s.

[tsgas]

SWA has been around since 1971 and has been profitable since 1973 - A feat no other U.S.Carrier can claim.

[arcticbeaches]

http://www.iht.com/articles/2008/05/22/ ... arrier.php

Another article along the same lines.

Time to find a job at a company with long term stability due to government money or oil money: I propose Canadian North, First Air, Sunwest, Cariboo and Borek as well as anything medevac as the best jobs to have right now in Canada when the downturn hits.

[EPR]

tsgas

SWA has been around since 1971 and has been profitable since 1973 - A feat no other U.S.Carrier can claim.

....This is mainly due to their very successful fuel hedging program.

[fortis risk]

Southwest has a successful hedging program, but its thier business model and smart policies that have set them apart.

[bmc]

tsgas

SWA has been around since 1971 and has been profitable since 1973 - A feat no other U.S.Carrier can claim.

....This is mainly due to their very successful fuel hedging program.

Fuel hedging and...

quick turn arounds
serving point to point
lowest salaries in the industry
lowest turnover of employees
no interlining
simplified pricing structure
high utilization

[Norfolk]

You may want to reconsider your "lowest salaries in the industry" comment. They are the highest paid pilots flying that type of aircraft.

[Panama Jack]

Agreed, and they are unionized, although I am not sure if they are a "real" union or a Company sponsored facade.

[bmc]

You may want to reconsider your "lowest salaries in the industry" comment. They are the highest paid pilots flying that type of aircraft.

I wasn't refering to pilots. I didn't know they paid crews the highest.

[Main Gear]

U.S. airlines 'have never faced a darker future,' study says

If gas prices don't fall quickly, the U.S. airline industry will have a "massive failure" that will cause more bankruptcies, including liquidations, according to a study published jointly Friday by AirlineForecasts and the Business Travel Coalition.

The study claims $130 a barrel oil prices will increase airlines' annual costs by $30 billion, but airlines are only able to generate $4 billion in fare increases and incremental fees. Fuel hedge benefits also could offset $5 billion to $6 billion of the increased fuel costs. But the major airlines could face $9 billion in net losses over the next 12 months if the current range of oil prices holds.

The study suggests airline fares will have to increase at least 20 percent just to cover the jump in fuel costs since 2007 -- an impossible increase, given the level of uneconomic seat capacity in the airline system.

At current oil prices, several large and small U.S. airlines will default on their obligations to creditors beginning at the end of 2008 and early 2009, the study predicts, warning the airlines "have never faced a darker future."

"U.S. commercial aviation is in full-blown crisis and heading toward a catastrophe," the study notes. "Airlines are the primary source of inter-city transportation, critical to national and local economic development, the flow of human capital, movement of just-in-time parts for manufacturing, perishable food and other goods critical to our economy. With airlines gravely threatened, so is our economic well-being."




http://www.bizjournals.com/twincities/s ... ily39.html

[Kelowna Pilot]

Before I used to think Peak-Oil was just kinda a fringe theory for the doom and gloom crowd.

But now I think we're starting to just see only the beginning of the effects of Peak Oil; we're just in the foot-hills of it now.

I really feel for people who are in the airline industry who have kids to feed and mortgages and who are financially dependent on the airline industry.

You really couldn't pick a more volatile or unstable or risky star to hitch your wagon to. Lots of sleepless nights I'm sure for our friends down south.

Canada generally lags about a year behind the US. We'll see the same stuff here soon enough.