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AMR & CAL May Benefit From BK's

Ex737Driver

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http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh21045_2005-09-15_00-16-47_n14682380_newsml



AMR, Continental may benefit from bankruptcies
Wed Sep 14, 2005 08:16 PM ET
By Christian Plumb



NEW YORK, Sept 14 (Reuters) - The last solvent traditional large U.S. airlines could be among the biggest beneficiaries from bankruptcy filings by Northwest Airlines Corp. (NWAC.O: Quote, Profile, Research) and Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) , analysts said on Wednesday.

Expected steps by both bankrupt carriers to slash domestic flights and put smaller planes on some routes could help AMR Corp.'s (AMR.N: Quote, Profile, Research) American Airlines and Continental Airlines Inc. (CAL.N: Quote, Profile, Research) , by getting rid of excess seats.

"The reduction in capacity that would follow the ... bankruptcies would be an across-the-board positive for the industry's solvent carriers," Merrill Lynch analyst Michael Linenberg said in a research note.

A Northwest bankruptcy "would support our thesis that calls for the removal of 100-200 aircraft from the domestic market due to record high fuel prices," Linenberg said.

Northwest and Delta both made clear in comments following their bankruptcies that trimming flights on unprofitable U.S. routes were among their priorities.

Northwest Chief Executive Doug Steenland said the Eagan, Minnesota carrier would return some planes to lessors, while Delta will cut flights out of some hubs, fly smaller aircraft on some routes and remove four plane types from its fleet.

Cutthroat competition among traditional airlines as well as from discounters like Southwest Airlines Co. (LUV.N: Quote, Profile, Research) , along with soaring oil prices, are the main reasons for the industry's current crisis, analysts say.

To be sure, the proliferation in bankruptcies is not without its risks for the still-solvent carriers.

'MORE PRESSURE'

If the No. 3 and No. 5 airlines manage to use bankruptcy to lower their wages and benefits and pension costs, they could emerge as potentially stronger competitors, or even to win business by lowering prices.

"It will put more pressure on other legacy carriers to cut costs more aggressively," said Ray Neidl, an analyst at Calyon Securities.

Bear Stearns & Co. analyst David Strine on Wednesday cut his recommendation on AMR to "peer perform" citing Delta and Northwest's relative advantage in bankruptcy.

Still, both American and Continental have been moving aggressively to ensure their survival and have generally gotten high marks from investors.

Both airlines eked out profitable second quarters, though they are still likely to lose money for the full year.

AMR shares are up 15 percent so far this year, while Continental is down 7 percent, while the sector as a whole is down 29 percent.

Both could also be helped by proposed legislation to ease pension burdens for the industry as a whole.

"If the pension legislation goes through, some of those legacy costs will have abated greatly," said Susan Donofrio, an analyst at Fulcrum Global Partners, adding that both airlines' costs are relatively close to those of the low cost carriers. In addition Continental, which has already been through bankruptcy twice, has shed many of the pension and other costs that Delta and Northwest will be targeting, she said.
 

Dan Roman

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Which only means that when the dust settles AMR and CO may be the ones left out to dry by all the reorganized and debt free legacies???
Be very carefull if you think you know what will happen in this industry, it only means your going to be proven wrong.
 

Ex737Driver

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I won't be proven right or wrong.......................just along for the ride. I find it slightly amusing at the 1/2 full, 1/2 empty journalists' glasses.
 

XTW

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Dan Roman said:
AMR and CO may be the ones left out to dry by all the reorganized and debt free legacies???
QUOTE]



The act of going through a CH.11 does not automatically wipe out all the debt, so there will be plenty of debt still owed. The restructuring of how they intend to pay it back is what is revised. Exit financing is another item that will have to be paid back in one form or another also. Unless, of course, you were BOAC and became a new zero debt BA.:rolleyes:


X
 

FlyinPiker

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These idiots can twist this any way they want

Three Growth Picks After Northwest, Delta Bankruptcies
Maya Roney, 09.15.05, 12:28 PM ET

Bear Stearns maintained an "underweight" rating on the airline industry following the bankruptcy filings of Northwest Airlines (nasdaq: NWAC - news - people ) and Delta Air Lines (nyse: DAL - news - people ) Wednesday.

"We believe having nearly half of industry capacity in Chapter 11 presents significant challenges for the sector, which we view as a commodity equivalent business with a structural pricing problem," said the firm.

With 47% of industry capacity in bankruptcy, Bear Stearns says non-bankrupt legacy airlines like Continental will be pressured to lower costs further. Low-cost carriers such as AirTran Holdings (nyse: AAI - news - people ), America West Holdings (nyse: AWA - news - people ) and JetBlue Airways (nasdaq: JBLU - news - people ) will need to reassess their shrinking cost per available seat mile (CASM) advantage, but could benefit from the twin bankruptcy filings.

"Northwest and Delta account for roughly 26% of domestic capacity, which, if trimmed by 7.5% equates to a 2% point reduction in industry capacity," said the firm. "We believe low-cost carrier-heavy routes are likely to see a disproportionate benefit from potential reductions at Delta and Northwest, with AirTran, America West and JetBlue in particular having an easier path for growth."

Bear Stearns has "underperform" ratings on Delta and Northwest; "peer perform" ratings on Continental, AirTran, JetBlue and America West; and an "outperform" rating on Alaska Air Group (nyse: ALK - news - people ).
 
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Dan Roman

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I think everyone is making the same point. You can look at this from all kinds of angles. Everyone seems to be jumping on the posssibility of a DAL/NWA merger, which I imagine is a possibility, but I think an even greater possibility is a bidding war. I'm sure AMR would love NWA's Asia routes, and having a MSP hub wouldn't hurt either. CO/DAL seems to work. This whole industry is one giant rubicks cube and I'll bet we are all going to be surprised at some of the transactions that will take place over the next 12-18 months. No airline really has a lot of money to play with (I read that CO may be selling Air Mic to raise needed cash) and AMR MAY have enough to keep out of BK but they still have a huge debt load to service, so my guess is the money is going to come from outside sources (hedge funds).
The whole industry is up for grabs and a few people are going to make a lot of money at the expense of a lot of people.
 

General Lee

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Dan Roman said:
I think everyone is making the same point. You can look at this from all kinds of angles. Everyone seems to be jumping on the posssibility of a DAL/NWA merger, which I imagine is a possibility, but I think an even greater possibility is a bidding war. I'm sure AMR would love NWA's Asia routes, and having a MSP hub wouldn't hurt either. CO/DAL seems to work. This whole industry is one giant rubicks cube and I'll bet we are all going to be surprised at some of the transactions that will take place over the next 12-18 months. No airline really has a lot of money to play with (I read that CO may be selling Air Mic to raise needed cash) and AMR MAY have enough to keep out of BK but they still have a huge debt load to service, so my guess is the money is going to come from outside sources (hedge funds).
The whole industry is up for grabs and a few people are going to make a lot of money at the expense of a lot of people.
Dan,

I think you hit the nail on the head. Thanks to higher gas bills, many airlines dont have a lot of extra cash lying around to buy assets. If creditors cannot get what they want, they may settle and try to merge assets and possibly get better value out of it in one large piece. More investors would come on board if they thought the airline had a fighting chance, and a merger or two strong networks (route wise) may create a viable carrier in the future.

Bye Bye--General Lee
 
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