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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.
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.