vikesfanIV
Active member
- Joined
- Aug 4, 2007
- Posts
- 37
High Crude Costs Make Airline Mergers Nearly Certain:Analyst
April 11, 2008: 01:07 PM EST
NEW YORK -(Dow Jones)- The completion of a merger between Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL) is a near certainty, analysts at Credit Suisse said Friday, due to the potential for crude oil prices to hit $120 this year.
Shares of Northwest and Delta rose on the report. Northwest traded up 3.5% to $11.25 a share and Delta gained 4.6% to $10.20 in recent trading. Other airline stocks were up several percentage points, including Continental Airlies Inc. ( CAL) and UAL Corp. (UAUA), which are rumored to be considering a merger in response to a Northwest/Delta deal.
Credit Suisse analyst Daniel McKenzie upgraded Northwest and Delta to outperform, saying there's a 98% probability for a deal. "Given the risk to standalone plans in the current volatile macro environment, believe a NW/DL deal has become a strategic imperative for both carriers, with or without labor," he wrote in a note to clients.
Crude oil hitting $120 a barrel will be like a Category 5 hurricane sweeping through standalone business plans, McKenzie wrote. Crude oil traded recently near $110 a barrel, up from $70 a barrel last summer.
McKenzie has viewed airline consolidation as likely for months. In January he wrote that airline consolidation "must result in lower costs, lower fares, better service, a rationalization of high cost capacity, & hence, a more efficient and profitable industry." He said then that the largest risk to consolidation is the airlines' ability to deal with labor concerns.
A major hurdle on that front was cleared for Northwest and Delta Thursday, after Delta pilots agreed to contract revisions. The airline industry's largest union, the International Association of Machinists, remains opposed to consolidation among the airline companies, saying they aren't in the interests of either employees or passengers.
Even if crude rises just 4.5% from its current level, to $115 a barrel, the standalone plans of Northwest and other airlines are thrown into jeopardy, McKenzie said.
American Airlines parent AMR Corp. (AMR) may also be looking to combine, McKenzie said, and Alaska Air Group Inc. (ALK) is "an opportunity of last resort" for American. However, he believes that American's high labor costs, combined with likely pay concessions for labor groups in order to get a merger done, will likely make an American acquisition of Alaska Air "a money-losing proposition."
Shares of AMR traded down a penny to $9.86 each, while Alaska Air traded down 2.5% to $19.65.
April 11, 2008: 01:07 PM EST
NEW YORK -(Dow Jones)- The completion of a merger between Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL) is a near certainty, analysts at Credit Suisse said Friday, due to the potential for crude oil prices to hit $120 this year.
Shares of Northwest and Delta rose on the report. Northwest traded up 3.5% to $11.25 a share and Delta gained 4.6% to $10.20 in recent trading. Other airline stocks were up several percentage points, including Continental Airlies Inc. ( CAL) and UAL Corp. (UAUA), which are rumored to be considering a merger in response to a Northwest/Delta deal.
Credit Suisse analyst Daniel McKenzie upgraded Northwest and Delta to outperform, saying there's a 98% probability for a deal. "Given the risk to standalone plans in the current volatile macro environment, believe a NW/DL deal has become a strategic imperative for both carriers, with or without labor," he wrote in a note to clients.
Crude oil hitting $120 a barrel will be like a Category 5 hurricane sweeping through standalone business plans, McKenzie wrote. Crude oil traded recently near $110 a barrel, up from $70 a barrel last summer.
McKenzie has viewed airline consolidation as likely for months. In January he wrote that airline consolidation "must result in lower costs, lower fares, better service, a rationalization of high cost capacity, & hence, a more efficient and profitable industry." He said then that the largest risk to consolidation is the airlines' ability to deal with labor concerns.
A major hurdle on that front was cleared for Northwest and Delta Thursday, after Delta pilots agreed to contract revisions. The airline industry's largest union, the International Association of Machinists, remains opposed to consolidation among the airline companies, saying they aren't in the interests of either employees or passengers.
Even if crude rises just 4.5% from its current level, to $115 a barrel, the standalone plans of Northwest and other airlines are thrown into jeopardy, McKenzie said.
American Airlines parent AMR Corp. (AMR) may also be looking to combine, McKenzie said, and Alaska Air Group Inc. (ALK) is "an opportunity of last resort" for American. However, he believes that American's high labor costs, combined with likely pay concessions for labor groups in order to get a merger done, will likely make an American acquisition of Alaska Air "a money-losing proposition."
Shares of AMR traded down a penny to $9.86 each, while Alaska Air traded down 2.5% to $19.65.
