The government bailed out banks to the tune of $234 billion so far ($205 billion for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) plus $29 billion for the Bear Stearns deal). Now General Motors (NYSE: GM) wants a $50 billion bailout (in the form of loan guarantees). So why not give the airline industry a bailout too?

After all, Wired reports that they're poised to lose $5.2 billion this year. Why? Well it doesn't help that "fuel bills have jumped $50 billion this year to an estimated $186 billion. Jet fuel now accounts for 36 percent of the industry's costs, up from 13 percent just six years ago," according to Wired. So why not bail out the industry -- after all it's hard to have a global economy if the airlines can't operate flights. To its credit, airlines seem to have had some success in pushing Congress to crack down on oil speculators -- oil's price has fallen from $147 to $101 in the last few months.

But since the administration seems to be in such a giving mood -- after all, our VP notes that his hero, Ronald Reagan, "proved deficits don't matter." And after bailing out banking, automobiles, and airlines, maybe they can get around to bailing out the three million homeowners in foreclosure and the 39% of mortgage holders whose properties are "underwater." Finally, why not use more taxpayer money to compensate investors whose stocks have lost 13% in the last year? Anybody else want a bailout?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Shares of UAL Corp. (NYSE: UAUA), the parent company of United Airlines, soared today after the Chicago-based company announced it had enhanced its liquidity by $1.2 billion. The company also posted second quarter results that were not as dismal as Wall Street had expected

The company will receive a payment of $600 million from JPMorgan Chase & Co. (NYSE: JPM) related to the advance purchase of frequent flier miles. In addition, the level of reserves that United is required to maintain under its credit card processing agreement with Chase Paymentech has been reduced to $25 million, a move which will free up about $350 million in previously restricted cash. UAL expects the frequent flier payment to improve cash flow by about $200 million over the next two years.

"Combined with the previously announced approximately $550 million raised from new transactions in the second and third quarters, the company will have increased its total cash balance by $1.7 billion and continues to have more than $3 billion in unencumbered hard assets," UAL said in a press release.

Early today, JP Morgan downgraded some airlines and commented that there would be a possible Chapter 11 among the industry's largest companies. "There will be blood," wrote analyst Jamie Baker in the research report, forecasting a 2008 operating loss for the industry of $7.2 billion," reports MarketWatch.

Several airlines were hit by the news, but United (NASDAQ: UAUA) sold off late on rumors and ended the day down 10% at $12.42. Continental (NYSE: CAL) also got squeezed by investors and was down almost 6% to $16.90.

The industry may be in a better position than investors think. This has nothing to do with rising fuel costs, which will keep operating costs very high or a recession, which could decrease traffic. It has everything to do with whether big banks want to write-off hundreds of million of dollars in losses in loans. They don't, especially not with poor balance sheets of their own. That should make it more likely the airline debt terms will be extended until the industry moves back in the direction of positive operating income.

Banks don't want to own airlines. Aviation is a bad business.

Douglas A. McIntyre is an editor at 247wallst.com.

AMR (NYSE: AMR) may have skipped key inspections of some of its planes to keep them in service. According to The Wall Street Journal, "American made the procedural changes and revised its maintenance manual in an effort to prevent planes from being pulled out of service." The inspections were meant to look over planes that may have been hit by lightning.

American's defense for skipping the procedures is that, if a pilot reported that his plane was hit by lightning, mechanics will look into it. What if the pilot is napping? Further, the airline says no plane has crashed from a lightning strike in over 30 years. How convenient.

The airlines have one, weak reason for cutting back on inspections. They cannot afford them. The federal government has to deal with the fact that some carriers are near bankruptcy because of high fuel prices. The FAA may have to supply financial support for extra work by mechanics, or watch the industry fall apart.

Douglas A. McIntyre is an editor at 247wallst.com and the editor of Ten Stocks Under $10.

TheStreet.com's Jim Cramer says they can't be profitable with this huge cost – it's time to move on.

Here's a revelation. The airline industry is disappearing right before our eyes. And it doesn't even matter. They can merge all they want, they can try to cut costs through synergy, but the business can't survive $120 oil. The variable cost is 35% of their expense. That's not tenable and it is going higher. Fares have to double to make it up. That's just not tenable. The Dreamliner's a nice savings, but this American industry won't get there in time to be saved by it.

Last week we saw the big give-up, the departure of even the longest-term investors. The stocks are signaling that most of them will have to restructure through bankruptcy. They have done it before, but this time it doesn't matter. The fare increases have to occur, and they are such that the airline structures can't be profitable. It is one of those industries that can't stay afloat without massive federal subsidies, and that can't happen.

I have hated the airline stocks ever since 1985 when I recommended Delta (NYSE: DAL) (Cramer's Take) and my clients promptly dropped 50%. I reiterate that after the tremendous declines these stocks have, they are still worth avoiding. Don't be tempted to pick up these stocks if oil "swoons" down to $115. The airlines will rally, but they will need to do every bit of financing possible if a rally occurs.

Anyone planning a vacation this summer should remember two words: AirTran and Jet Blue Airways Corp. (NASDAQ: JBLU).

Those were the two airlines that came out on top of a national survey of airline quality released today that underscored the sorry state of the industry. Anyone who has flown since 9-11 knows that getting your teeth pulled is more fun. Planes are filled to the brim and are often late. Luggage often goes on magical mystery tours that bypass your destination.

Last year was more of the same, according the Associated Press

"There were more lost bags, more bumped passengers, more consumer complaints and fewer on-time flights than in the previous year," the story says. "The rate of consumer complaints was up 60 percent. US Airways (NYSE: LCC) had the most complaints last year. Southwest (NYSE: LUV) had the fewest."

Bad airlines are bad for the environment because it encourages more casual fliers to drive to their destinations. Even with soaring gas prices, flying isn't worth the trouble. I may have to fly this summer and I'm already dreading it.

--Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.


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AMR (NYSE: AMR) hit the market with two pieces of bad news yesterday. The parent of American Airlines announced that its fuel costs would rise well above projections made by the company two months ago. AMR's new forecast projects the firm will have a 2008 fuel bill of $9.29 billion -- more than $1 billion above what it was expecting earlier in the year -- assuming prices don't rise even further than planned, according to an SEC filing.

AMR was also hit with a downgrade from S&P. According to MarketWatch, the ratings agency changed the company's "long-term ratings of B/Negative/B-3 and its subsidiary American Airlines Inc. to negative from positive. S&P also lowered AMR's short-term rating to B-3 from B-2."

AMR's shares, which traded at $40 at the beginning of 2007 now change hands at $9.62. S&P is asking, by way of its rating, whether all of the US carriers will make it through the year if fuel keeps rising and travelers cut back. It is a legitimate question.

Douglas A. McIntyre is an editor at 247wallst.com.

MAJOR PAPERS:

• Following the collapse of The Bear Stearns Companies Inc (NYSE: BSC), the industry is rampant with rumors wondering about the financial well being of scores of other institutions, according to a Wall Street Journal report called "The Credit Crisis Hits Wall Street". True or not, its giving fits to the companies, regulators, and investors.
• Skyrocketing fuel prices and a weakened economy are taking their toll on the airline industry, reported the Wall Street Journal. Additionally, the proposed Delta Air Lines Inc (NYSE: DAL) merger with Northwest Airlines Corporation (NYSE: NWA) has lost its momentum as airline pilots cannot agree on a structured seniority system.

OTHER PAPERS:

• According to people close to the situation, the New York Times reported that before the end of the month, Citigroup Incorporated (NYSE: C) is planning to lay off another 2,000 investment bankers and traders.
• The Detroit News reported that Ford Motor Company (NYSE: F) appears to have fallen short of its goals in the latest, and possibly last, round of company-wide buyouts for hourly workers.

When JetBlue Airways Corp. (NASDAQ: JBLU) shoved founder David Neeleman out from his CEO position in May, he described it as a "natural evolution of our leadership structure." Wow, that's more spin than you see at a dreidel at Hanukkah.

To say that things haven't gone JetBlue's way in 2007 may be an understatement. in February, thousands of fliers were left stranded in jam-packed aircraft that never took off because of inclement weather. To Neeleman's credit, he quickly owned up to the blunder and enacted a "bill of rights for customers" and apologized until he was blue in the face -- no pun intended.

Since his departure, Neeleman tried his hand at blogging, though his "flight log" hasn't had a new entry since November. Maybe he's busy counting his money. InsiderScore estimates that he's sold more than $30 million worth of stock over the past 18 months. That should help heal his wounded pride. Too bad that investors aren't so lucky.

Shares of JetBlue Airways Corp. (NASDAQ: JBLU) are soaring after reports that Lufthansa (OTC: DLAKY) is planning to buy about a 25% stake in the discount carrier.

"The interest from Lufthansa, which is based in Germany, is the latest example of foreign investors leveraging the strength of the euro against the dollar," according to the New York Times' DealBook blog. "By limiting its stake to 20 percent, Lufthansa would remain below federal limits on foreign ownership of a domestic airline. Though the investment will be passive, these people told DealBook, it opens up an opportunity for Lufthansa to make a bigger deal down the road, possibly some kind of partnership."

The investment may be the shot in the arm the Forrest Hills, NY-based company needs as it faces increased competition from the likes of Virgin America and Southwest Airlines Co. (NYSE: LUV). Maybe it will help JetBlue expand to additional markets which should give Southwest some serious competition.

Be forewarned, investing in airline stocks is like checking bags in at the airport. People expect the worst and hope for the best.

Thanks to a sour revenue outlook from AMR Corp. (NYSE: AMR), the AMEX Airline Index (XAL) is in the red, bringing up the rear among most sector indices despite a modest pullback in crude prices (which generally help lift airline stocks).

The group can hang the blame for today's declines on the American-Airlines parent, which said late Friday that passenger revenue would rise 3.7% to 4.7% in the third quarter. This growth rate is notably lower than rival Continental Airlines (NYSE: CAL), which recently noted that unit revenue rose 6.5% to 7.5% in August. Other rivals, including UAL Corp. (NASDAQ: UAUA) have also projected better revenue numbers. AMR did note with its report that costs were rising, as the company has earmarked funds to improve customer service. And on the plus side (barely), fuel prices are likely to average $2.21 a gallon, the company said, compared to a July forecast of $2.24.

Our sister site, Engadget, sat down to an exclusive interview with Virgin Group Chairman Sir Richard Branson. Branson, the swash-buckling founder of the Virgin empire, flew to San Francisco on the first ever Virgin America flight. Branson, who has a 25% stake in the new company, worked for three years to get U.S. regulators to approve his new low-cost carrier.

Sir Richard is vocal in his criticism of the U.S. airline industry. Indeed, he tells Engadget that if it weren't for America's peculiar Chapter 11, none of the legacy carriers in this country would still be around. To wit:

"...they just keep on going in and out of bankruptcy. In Europe, if you're dead you're dead, make room for new children to grow. It's not good for the traveling public. It's much better if you have the English system, where if you don't succeed you're bankrupt and you make room for somebody else."

The airline will compete with the likes of Jetblue Airways Corp. (NASDAQ: JBLU) and Southwest Airline Co. (NYSE: LUV), and will feature two flights a day to New York and five to Los Angeles from SFO. Frequent flyers must be excited, given the high reputation of the Virgin brand name, and Branson has promised these new planes, Airbus A319 and A320 jets, will have the latest in high-tech entertainment options.

Which is why the boys at Engadget wanted to go along for the ride, no doubt. Check out the whole interview here:

All of the sales and order announcements of the past six months have shown up in Boeing Co.'s (NYSE:BA) second quarter earnings announcement. The company reported strong quarterly EPS of $1.35, well above Thompson-compiled analyst expectations of $1.16 and 2006's year/year adjusted EPS of $.56. Operating earnings broke $1.5 billion.

The strong performance came primarily as a result of more plane deliveries and strong orders for the 787 Dreamliner. Orders in turn can be credited to airlines upgrading aging fleets and increased fuel costs, which make the efficient Dreamliner more desirable. The company finished the quarter with $279 billion in orders to be filled.

Though JetBlue Airways Corp. (NASDAQ: JBLU)'s Chief Executive Dave Barger seems to be bringing much needed focus to the plucky airline whose reputation was damaged by service disruptions in February, investors should continue to avoid the stock for now.

JetBlue currently trades at a forward price-to-earnings multiple of 21, higher than Southwest Airlines Corp. (NYSE: LUV) and American Airlines parent AMR Corp. (NYSE: AMR), so the shares are no bargain. Plus, Barger told the Wall Street Journal that he wasn't interested in selling the airline, which rules out any buyout premium.

"I wouldn't welcome any overture. In an acquisition, the product would get lost. The focus on costs would get lost," he told the paper. "Most importantly, this relationship we have with our crew members, 11,500 strong, [would be lost]. I just don't think that's a good solution for us."

Stocks for most U.S. and European Airlines fell and then rallied to near their original values earlier today, on arrests of 21 individuals plotting terrorist attacks on trans-Atlantic flights. The sell-off is simple enough to explain, investors being concerned that imposition of heightened security-levels and traveler reluctance to fly would put additional pressure on the ever-ailing industry.

The rebound is explainable as well, as previous terrorist plots have somehow failed to bring the West to its knees. I'm flying the weekend before Labor Day, and wouldn't cancel for the world, though I'll probably (*sigh*) add yet another half-hour to my departure time for SeaTac airport.

Michael Canfield is a private investor, a business and media writer, living in Seattle. He doesn't own stock in the companies discussed in this post.