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Continental Relatively OK in Battered Industry

SKLJ

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http://www.chron.com/cs/CDA/ssistory.mpl/business/3316826


A BATTERED INDUSTRY

Continental relatively OK

Carrier gets favorable report, by comparison, based on labor contracts

By BILL HENSEL JR.
Copyright 2005 Houston Chronicle

With Northwest — which faces a possible imminent strike by its mechanics — and Delta airlines mentioned as bankruptcy candidates, Continental Airlines' stronger footing gained some notice Thursday.

Analyst Gary Chase of Lehman Bros. noted in a report that Continental and American Airlines both have "solid operating profiles" compared with Northwest and Delta.

He also said, "Continental's favored status is partially due to the carrier's recent labor agreements, which materially improve the financial outlook for the company."

The Houston-based airline earlier this year reached a set of labor contracts with unions that included concessions, and it detailed cutbacks for nonunion groups.

But that doesn't mean Continental doesn't have its own problems. It's in federal mediation with its flight attendants, after members of that union voted down a contract with concessions earlier this year. And record oil prices continue to mean high jet fuel costs.

Chase, though, questioned whether the differing market perceptions of the "cool" airlines — those not in immediate danger of bankruptcy — and the others is really justified.

"Last we checked this was largely a commodity business, and we increasingly wonder if the fundamental outlook between these groups of carriers can be, in reality, so different," the analyst wrote.

Chase also said he doesn't expect American and Continental to be able to repeat their solid second-quarter earnings results in the third quarter because of the high oil prices.

Investors in Continental may have taken note Thursday. Continental's stock dropped 44 cents to close at $14.71 a share. Shares in American's parent were down 7 cents, to $13.90 per share, while Delta was down $1.54 per share.

Northwest faces a possible strike by its mechanics late tonight. The airline's management and the mechanics, who were talking Thursday, still remained far apart.

However, Northwest's stock rose Thursday, closing up 48 cents at $5.48, as analysts cited the preparation it has done in the case of a strike. Northwest said it has people ready to fill positions if employees walk.

Northwest said the latest proposal from the mechanics' union "appears to fall far short" of the $176 million it is seeking in annual wage and benefit cuts. The union also represents custodians and cleaners.

Northwest estimated the savings in the latest deal from the union would be about $100 million. Northwest spokesman Scott Tennant said Thursday the carrier remains hopeful the ongoing talks will be fruitful.

Bear Stearns analyst David Strine wrote that he believed a deal between two sides was still possible.

Labor problems aren't confined to big network carriers. On Wednesday, flight attendants at ExpressJet, the regional airline serving Continental as Continental Express, requested a federal mediator to aid in talks.

If Delta files for bankruptcy and then were to downsize, Continental could see some benefit because of the overlap on routes. But Lehman Bros. believes some others, such as JetBlue, may benefit more.
 
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