Frontier goes Chap 11...

[Andy]

my wild guess would be boeing, airbus or an engine manugacturer. They both have some old planes and will need huge orders for new ones soon.

I guess you missed what happened with GE's earnings this morning? Boeing and Airbus are also going to have troubles moving forward.

 

[learflyer]

This is worse than after 9/11. no?

 

[ackattacker]

This is worse than after 9/11. no?

I think that's a bit premature. It's not that bad... yet.

Post 9/11 almost all the majors went into BK and many thousands were furloughed. We're not there. Yes there's been lots of bad news but so far it's just relatively small players. That's little consolation for those out of a job, but still, I think there's a good chance that we will pull through this without industry wide furloughs and bankruptcies.

edit:

I meant to also mention that I think the airlines have wised up and are preparing to pass the cost of fuel onto the customer, which they failed to do post 9/11. They were too cocky and everyone felt they had enough cash to still undercut their competitors. This time all the major's are making modest cuts to domestic capacity ahead of time. This is a smart move IMHO. They know they need to drive prices up.

 

[Andy]

This is worse than after 9/11. no?

By a longshot. About a year ago, I thought that we were looking at the worst recession since the Great Depression. I didn't bother posting it here because of the ridicule that you're subjected to by making such a statement.
Last fall, I revised that downward. I think that we're looking at worse times than the Great Depression due to the huge problems in the credit markets. I might've posted that here in the last month; pretty sure that I took a few shots for that statement.

You haven't seen bad yet. After this spring, I expect the housing market to collapse. That's going to trigger a lot of waterfall financial events throughout the world.
If you watch the talking heads on TV, they're going to paint a much brighter picture because it's in their best interest to do so. However, they keep revising every estimate downward.

Failure to plan is planning to fail.

 

[Lear70]

Yeah, you took a few potshots... But gave a few back yourself.

Seriously, Andy may be a little alarmist, but it's going to be bad. Maybe not "Great Depression" bad but not that far off it, IMHO.

This is just the tip of the iceberg. Heard of all the bills being passed around the House and Senate to try to "fix" the housing market? That's because they know the bottom isn't here yet and are trying to shore up the housing market.

It will help a lot of people who are in danger of defaulting on their homes but are otherwise OK for credit by basically letting them refinance their ARM into a fixed-rate FHA loan at 5% or so. That will help, but won't fix the problem for people who are having income problems (low-paying jobs or no jobs with rising fuel, energy, and food costs).

The tax credits for people buying homes they plan to live in is great, but it's not anything NEAR an incentive to buy and won't stimulate the market at all. Those who plan on (and are capable) of buying a new home were going to anyway, regardless of tax cuts. I don't mind, every little bit helps on a personal level, but it will fail miserably as a "stimulus package" (like just about everything else Bush has tried).

I expect the aviation market to get a lot worse as well. Wait until DAL and NWA start consolidating operations... why do you think they'll keep 6 RJ feeders who operate a LOT of money-losing 50-seaters? I'm betting another 2,000+ on the street by the end of the year from furloughs at regionals that may even shut down (maybe even Mesa) plus some furloughs at places like Midwest and Spirit (word on the street is that Spirit is cash-only in some of the cities they serve - not a good sign).

Who knows... airTran is OK for cash but, to preserve that spot, may sell some of their 717's that are coming up on heavy checks which will trigger some furloughs (hopefully enough voluntary to go back on Mil duty to keep from kicking too many people to the curb).

Andy and I may disagree from time to time, but I think he's closer to the truth on this one than most here on FI want to believe.

Plan accordingly. Better safe than sorry.

Best of luck to the fine folks at Frontier. Been on you guys several times, always a class act!

 

[learflyer]

agreed. The first indicator is the housing market.....should've come back by now. Especially in a "transient" state like Florida. Scary stuff.

 

[PCL_128]

I guess you missed what happened with GE's earnings this morning? Boeing and Airbus are also going to have troubles moving forward.

GE has $16 billion in cash and BA has $10 billion. If they think their entire domestic market for aircraft and engines is collapsing, I think you'll see them use a significant portion of their cash to help bail out some key airlines.

 

[Tanker Clown]

Didn't GE do a lot of the "bailing out" last time all the majors went through Ch 11? BTW, GE missed earnings by $.07 a share today. They say around $.05 of that was their credit operation. With their credit operation already under pressure, would you lend money to an airline. Talk about a sub prime borrower...

 

[Lear70]

GE has $16 billion in cash and BA has $10 billion. If they think their entire domestic market for aircraft and engines is collapsing, I think you'll see them use a significant portion of their cash to help bail out some key airlines.

"key" airlines being the defining term.

I don't think Frontier qualifies. All they've had on order as far as I know is Q-400's, and Bombardier is doing OK, but may not be interested in investing a lot of capital, not to mention is restricted by foreign ownership limits (for now).

Frontier isn't exactly a "booming" mecca of aircraft purchases. My bet is G.E. Cap et al. will wait to use their money to shore up Legacy carriers such as AA who I believe will file Ch. 11 and reorganize, using the losses from the recent FAA checks as an excuse to shed some debt.

Tanker, companies such as G.E. Cap don't really have a choice but to bail out their customers. If they don't bail them out, the airlines default on Billions of debt and you lose any future money you will make as well.

It's a lose-lose position, they just have to pick the lesser of two evils.

 

[Charlie Brown]

It would be a real shame to see a large chunk of the Denver market go to SWA.

Yeah what a bunch of bastards for having a solid business plan.

I wish the folks at F9 the best.

 

[Tanker Clown]

Yeah what a bunch of bastards for having a solid business plan.

I wish the folks at F9 the best.

Hey CB...you might want to get off your high horse. Who's to say that SWA won't be filing Ch 11 within a year.

 

[say again]

This industry S$CKS!!!!!!!!!!!!!!!!

 

[dude100]

Isn't it kinda of interesting that all these carriers are going tits up around the same Bush and one CEO (Tilton) are talking, "time to ease foriegn ownership rules" the US Airline industry is going the way of the shipping and cruise line. Not one ship is registered in the US or operated buy American crews.

"I SAY WHAT WHAT, IN THE BUTT, I SAY WHAT WHAT IN THE BUTT!!!"

 

[Oakum_Boy]

Italian crews driving Liberian registered aircraft. Lord help us.

 

[vikesfanIV]

Hey CB...you might want to get off your high horse. Who's to say that SWA won't be filing Ch 11 within a year.

Tanker Clown, barring something catastrophic specific to SWA, there is no way they are going BK within a year. Especially given their strong balance sheet relative to all the competition. SWA knows it's hedges are winding down and has a plan to make up that lost revenue (to the tune of about $1.5 billion a year according to Gary Kelly). But that is a few years down the road. They are the best positioned airline to withstand this current environement. 70% hedged this year at $51/barrel, 55% hedged for 2009 at $63/barrel, and 30% at $63/barrel for 2010. That's with their current growth plans. If they decide to cut their growth then all those numbers go up respectively. Their balance sheet has $2.7 billion in cash vs. $2.0 billion in long term debt. They spent $1.8 billion dollars the last 2 years buying back stock (money they obviously wouldn't be spending on a stock repurchase plan if they were having cash flow problems). Like I said, SWA needs to fix some things by 2010, but they are in great position for the rest of this year and into 2009.

 

[PCL_128]

"key" airlines being the defining term.

I don't think Frontier qualifies.

I wasn't really referring to F9. Andy was basically talking about complete industry armageddon, so I was talking about loans from BA and GE in a general sense to the industry. They'll end up loaning to the companies that they feel will be their best customers over the next decade.

Tanker, companies such as G.E. Cap don't really have a choice but to bail out their customers. If they don't bail them out, the airlines default on Billions of debt and you lose any future money you will make as well.

Exactly. The fact that GE is missing earnings won't really factor in to the equation. The engine business is a significant part of their conglomeration, and they won't let the entire domestic market collapse, especially while they're sitting on $15 billion in cash.

 

[Yuppyguppy]

Unfortunately there will be no savior for F9. Credit markets are dead, and M&A is out of the question as other carriers want to keep their cash reserves high in case of a protracted recession.

Analcysts are saying FL and UAL are next up. FL certainly made a mistake by not leveraging more, but as more capacity comes off-line they will benefit by higher fares. I think they will survive.

UAL is the wild card. They feel that CAL will dance with them, but I have a feeling Kellner will let AMR file chapt 11 and then look to talk to them. Regulators will have a more open mind about an AMR merger if that happens.

imp:​

AMR and CAL? Aren't they in the same state? Two hubs in NY? Yeah your right. But who knows about UAL...our mgmt is soooooo stupid.

 

[737 Pylt]

Hey CB...you might want to get off your high horse. Who's to say that SWA won't be filing Ch 11 within a year.

Must be a slow day on myspace, hey jmoney?

Didn't you just write this?

But I bet you'd love to be working at SWA right now. They are starting to look like the only guys who will be around in a few years.

Maybe you better get back to rubbing the colonel's feet and making those all important copies.
After you've got a lot of taxpayer money to keep wasting!

737

 

[Tanker Clown]

Tanker, companies such as G.E. Cap don't really have a choice but to bail out their customers. If they don't bail them out, the airlines default on Billions of debt and you lose any future money you will make as well.

It's a lose-lose position, they just have to pick the lesser of two evils.

Isn't this constant bailing out of airlines kind of like throwing good money after bad. At some point, they probably have to look at cutting off a few of the smaller players.

 

[realmanofgenius]

the worst case is china investment corp (ref 60 min special 4/6/08) comes in and starts buying failed banks, airlines, and pretty much starts setting u.s. monetary policy as a result. we are close to the brink. the fed can't fix everyhting.

 

[JA'd]

If only Bush could run for a third term he could fix everything.

 

[list2002]

Lmao!!!

 

[Andy]

Yeah, you took a few potshots... But gave a few back yourself.

LOL! Dude, giving and taking shots is a requirement on FI. Personally, I love a good debate as it forces me to look at an issue from multiple angles. I've seen the Law of Unintended Consequences many times and have found that the best way to avoid it is by examining stuff from all angles, even if I don't fundamentally agree with someone else's point of view. I've changed my views more than once due to this.

Seriously, Andy may be a little alarmist, but it's going to be bad. Maybe not "Great Depression" bad but not that far off it, IMHO.

The Great Depression was only bad if you didn't have a job. From what I've read, it wasn't a problem as long as you were employed. (DUH - I'm stating the obvious here).
There will be a lot of social safety nets to keep the masses from starving, but there will be a lot of families that get kicked out of their McMansions, lose their Escalades, and have their 20' boats replaced with tire inner tubes. It's going to be an adjustment. I like to compare it as 'The Great Gatsby' meets 'Of Mice and Men.'

This is just the tip of the iceberg. Heard of all the bills being passed around the House and Senate to try to "fix" the housing market? That's because they know the bottom isn't here yet and are trying to shore up the housing market.

It will help a lot of people who are in danger of defaulting on their homes but are otherwise OK for credit by basically letting them refinance their ARM into a fixed-rate FHA loan at 5% or so. That will help, but won't fix the problem for people who are having income problems (low-paying jobs or no jobs with rising fuel, energy, and food costs).

The tax credits for people buying homes they plan to live in is great, but it's not anything NEAR an incentive to buy and won't stimulate the market at all. Those who plan on (and are capable) of buying a new home were going to anyway, regardless of tax cuts. I don't mind, every little bit helps on a personal level, but it will fail miserably as a "stimulus package" (like just about everything else Bush has tried).

The big problem with housing is that supply FAR exceeds demand. There was a LOT of speculators that drove prices higher and a LOT of people bought more than they could afford because they wanted maximum leverage in an up market.
We now have negative household formation which is going to be occurring for a while. That will absolutely kill home prices. I've read (and concur with) analysis of the housing market where we're looking at price drops of 80% from peak (fall 06) to trough (my guess is 2011). Mortgages are non-recourse; once Joe 6Pack figures out that a ding on his credit rating isn't going to kill him, the amount of jingle mail is going to skyrocket.

I expect the aviation market to get a lot worse as well. Wait until DAL and NWA start consolidating operations... why do you think they'll keep 6 RJ feeders who operate a LOT of money-losing 50-seaters? I'm betting another 2,000+ on the street by the end of the year from furloughs at regionals that may even shut down (maybe even Mesa) plus some furloughs at places like Midwest and Spirit (word on the street is that Spirit is cash-only in some of the cities they serve - not a good sign).

Who knows... airTran is OK for cash but, to preserve that spot, may sell some of their 717's that are coming up on heavy checks which will trigger some furloughs (hopefully enough voluntary to go back on Mil duty to keep from kicking too many people to the curb).

Spirit's a private company; I took a look at their cash on hand (latest data is end of Sep 07) and they looked OK. If that's true, that's bad news for Spirit.
No airline's exempt from this carnage. The only one that's sage for the forseeable future is Southwest.

Andy and I may disagree from time to time, but I think he's closer to the truth on this one than most here on FI want to believe.

Plan accordingly. Better safe than sorry.

Best of luck to the fine folks at Frontier. Been on you guys several times, always a class act!

Thanks. And yes, I agree that the employees of F9 are a class act.

 

[Andy]

"I SAY WHAT WHAT, IN THE BUTT, I SAY WHAT WHAT IN THE BUTT!!!"

BUTTERS! You need to make an internet video to save the airline industry.

Did you like the parody of the Writers Guild strike? Hilarious.
There are a lot of lessons that unions can learn from them.

 

[Andy]

Tanker Clown, barring something catastrophic specific to SWA, there is no way they are going BK within a year. Especially given their strong balance sheet relative to all the competition. SWA knows it's hedges are winding down and has a plan to make up that lost revenue (to the tune of about $1.5 billion a year according to Gary Kelly). But that is a few years down the road. They are the best positioned airline to withstand this current environement. 70% hedged this year at $51/barrel, 55% hedged for 2009 at $63/barrel, and 30% at $63/barrel for 2010. That's with their current growth plans. If they decide to cut their growth then all those numbers go up respectively. Their balance sheet has $2.7 billion in cash vs. $2.0 billion in long term debt. They spent $1.8 billion dollars the last 2 years buying back stock (money they obviously wouldn't be spending on a stock repurchase plan if they were having cash flow problems). Like I said, SWA needs to fix some things by 2010, but they are in great position for the rest of this year and into 2009.

SWA management is firing on all cylinders. Just as the speculative oil bubble deflates, their hedges will be gone. Talk about superior execution. For a company that size, I'm blown away with how nimble they are.

 

[Andy]

the worst case is china investment corp (ref 60 min special 4/6/08) comes in and starts buying failed banks, airlines, and pretty much starts setting u.s. monetary policy as a result. we are close to the brink. the fed can't fix everyhting.

China and most of the rest of the world are going to be facing MUCH more adverse financial conditions than the US. China's going to be cashing in all of their US treasuries in an attempt to shore up China. They won't have extra money to prop up the US.

The Chinese proverb, 'May you live in interesting times,' applies to the next decade.

 

[BILL LUMBERG]

SW. Just another gang of crooks on top hiding under smiles, pencil whipping, and shiny paint.

But I bet you'd love to be working at SWA right now. They are starting to look like the only guys who will be around in a few years.[/quote]

Wow....brilliant comment tanker, once again, if there was a contest for biggest Jackhole on FI, you'd win hands down!!!! Penekamp gets second in a close fight......

 

[737 Pylt]

Wow....brilliant comment tanker, once again, if there was a contest for biggest Jackhole on FI, you'd win hands down!!!! Penekamp gets second in a close fight......

Yeah but pennekamp doesn't want to play any more. He took his ball and went home.
With tanker clown, he's just killing time between photcopying and serving coffee. After all, what's a government worker to do?

737

 

[Daedalus]

I was reading an article from AW&ST (April 7th issue) about the US/EU Open Skies agreement and its second phase of implementation. The EU and several EU carriers believe that this first phase of implementation, which began on March 30th has greatly benefitted the participating US carriers over EU carriers, especially those in the UK.

The UK government has already signaled that it wants to see significant movement on foreign ownership rules or it will insist on withdrawing the current rights granted in this first stage. US and EU negotiators will meet in Slovenia next month to begin talks, but several industry watchers believe it could take at least four years to ink a deal for the second stage of this agreement.

Currently both sides believe it would be "tremendously" difficult to change US foreign ownership laws sufficiently to satisfy the Europeans. However, "many US airlines, though, are just as anxious as their UK counterparts for the restrictions to be lifted because it would allow a greater flow of capital to the beleaguered US airline industry." The industry experts contend that merely lifting the foreign investment cap would not change much (from the European perspective) and actual control of an airline is the crucial litmus test for effective change. Virgin's director of external affairs and route development, Barry Humphreys said the following:

"The percentage of ownership is not important; the control element is most important."

With this EU force being applied in Washington, all while the US airline industry is running headlong into a major recession; a recession that is beginning to manifest itself with the latest airline financial failures in the last two weeks, will make this Open Skies Stage 2 negotiation effort far more plausible as an acceptable alternative to another federal government bailout of the US airline industry.

As someone mentioned earlier in this thread, in a few short years we could look up and see Southwest as the only wholly-owned US airline remaining in our business.

 

[YourPilotFriend]

Tanker Clown, barring something catastrophic specific to SWA, there is no way they are going BK within a year. Especially given their strong balance sheet relative to all the competition. SWA knows it's hedges are winding down and has a plan to make up that lost revenue (to the tune of about $1.5 billion a year according to Gary Kelly). But that is a few years down the road. They are the best positioned airline to withstand this current environement. 70% hedged this year at $51/barrel, 55% hedged for 2009 at $63/barrel, and 30% at $63/barrel for 2010. That's with their current growth plans. If they decide to cut their growth then all those numbers go up respectively. Their balance sheet has $2.7 billion in cash vs. $2.0 billion in long term debt. They spent $1.8 billion dollars the last 2 years buying back stock (money they obviously wouldn't be spending on a stock repurchase plan if they were having cash flow problems). Like I said, SWA needs to fix some things by 2010, but they are in great position for the rest of this year and into 2009.

The fuel hedges are meaningless. The question is whether or not the company can "right size" itself into the coming recession. My personal opinion is it is 100 planes too many.