According to internal company and agency documents, the Wall Street Journal reported that the FAA is investigating into why AMR Corporation's (NYSE: AMR) American Airlines ordered mechanics to skip specific safety instructions to detect damage to planes from potential lightning strikes.
Yahoo! Inc (NASDAQ: YHOO) is trying to quickly put the finishing touches on a search advertising deal with Google Inc (NASDAQ: GOOG) as billionaire Carl Icahn launches a proxy fight for control of Yahoo's board, according to the New York Post. Yahoo! hopes to announce a deal with Google to create an open platform system within the next week, two inside sources said.
The New York Post reported that a partnership of MGM Mirage (NYSE: MGM) and investment company Dubai World may seek to buy the Drake Hotel site from developer Harry Macklowe. If a deal is reached, MGM and Dubai World would assume $580M in defaulted debt and interest, inside sources said.
In reaction to surging fuel costs, several major airlines announced today that they were raising their fares in order to recoup some of their rapidly increasing flying costs.
The increase this time around is $20 and effects passengers traveling on UAL Corporation (NASDAQ: UAUA), Delta Air Lines, Inc. (NYSE: DAL), and AMR Corporation (NYSE: AMR)'s American Airlines. The $20 jump in prices will be added to the airline's fuel surcharges, and consequently, these charges are now running at $130 round trip on most flights that you will book through the airlines.
The current rate hike was first initiated by Delta, and marks the second time in just over a week that the airline has been forced to raise fares in order to combat record high fuel costs. Times are definitely tough for airlines, and they are doing everything they can to combat fuel prices, but regardless of the rate increases most analysts are still expecting to see huge losses this year from most, if not all, airline carriers.
After hitting a one-year high of $29.32 in July, the stock hit a one-year low of $6.81 last week. AMR opened this morning at $8.00. So far today the stock has hit a low of $7.95 and a high of $8.63. As of 12:20, AMR is trading at $8.50, up $0.76 (9.8%). The chart for AMR looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $6 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just seven weeks as long as AMR is above $6 at June expiration. American would have to fall by more than 29% before we would start to lose money. Learn more about this type of trade here.
Eos was an improbably candidate for success in the airline industry. It flew one route, from New York's JFK to London. It was an all-business-class carrier.
Now, Eos is bankrupt. Having only one route, added to the rising price of jet fuel, cut the carrier down.
The news raises the question, once again, whether small and large airlines alike can make it though the current increase in fuel prices and a recession without having to file for Chapter 11. It was only four years ago that most U.S. carriers had to seek protection in the courts. AMR (NYSE: AMR) was one exception. That hurts it now because it did not use bankruptcy to cut its debt and the costs of its workforce. That may make it the most likely candidate of any American carrier to hit the air pocket of insolvency.
The oil price crisis my be so bad that, coupled with falling passenger revenue in a sharp and prolonged downturn, even mergers like the one planned by Delta (NYSE: DAL) and Northwest (NYSE: NWA) will not save them.
That will leave the banks, who hold most of the debt on airline balance sheets, holding the bag.
Douglas A. McIntyre is an editor at 247wallst.com.
Fort Worth-based AMR Corp. (NYSE: AMR), parent of American Airlines, was the first major U.S. airline company to report first-quarter results, and it posted a loss of $1.32 per share. Revenue rose 5% to $5.7 billion. Analysts surveyed by Thomson Financial had expected a loss of $1.34 per share on revenue of $5.73 billion.
Filling seats wasn't American's problem -- average occupancy hit a record 79.1% percent in the quarter. Average fares paid rose 5.1%, as airlines raised ticket prices. But executives said they were concerned about the weakening economy and even more worried about skyrocketing fuel costs. American's fuel spending jumped 45%, offsetting further increases in revenue.
American announced that it will be cutting U.S. capacity by 3.6% this year and selling 90% of its investment arm, American Beacon Advisors. The company also expects to sell or spin off its American Eagle regional airline this year to raise additional cash.
American is also speeding the replacement of its fleet with more fuel-efficient Boeing (NYSE: BA) 737-800s, taking delivery of 30 new planes in 2009 and 2010 instead of the previously planned 23.
AMR shares rose 35 cents, or 4.1%, to $8.92 in trading Wednesday.
American Airlines, a subsidiary of AMR Corp. (NYSE: AMR), has announced that it received the green light from aviation officials to return all of its 300 grounded jets to service. The jets were temporarily grounded as the Federal Aviation Administration surprised the airlines as officials thought the required repairs had been made weeks ago . Officials said that "the wiring still was not secured and stowed properly in wheel wells."
American, the U.S.'s largest airlines, resumed flying the MD-80s today after canceling more than 3,000 flights this week. The AP story linked to above quoted an S&P analyst who reckoned the cancellations cost the struggling airlines at least $30 million.
There is quite a row going on at SeekingAlpha (warning: foul language) where top media blogger, Jeff Jarvis, has recently turned his sights on the airline industry as a whole. Jarvis, well-known for his views on the death of old media, Jarvis augers that without change the whole industry is in a death-spiral.
Says Jarvis, "I think the essence of their future is: They [the airlines] have to explore new value by having a decent relationship with us, using that new value to improve the experience so they can have a decent relationship. Screwing your customers is the least sustainable business model."
Them's fightin' words...
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
As you know, American Airlines -- AMR Corp (NYSE: AMR) has been having a tough week. The company started running a new round of inspections on Tuesday which has led to large cancellations for the past 4fourdays.
Today, once again there were more cancellations, with another 595 flights being grounded. It can be very frustrating to find out your flight has been canceled, but some airports are upping their efforts to accommodate the unlucky passengers. All combined, the airliner has been forced to cancel in excess of 3,000 flights this week, impacting some quarter of a million travelers.
We have all had to deal with canceled, or delayed flights... and one thing is for sure, it is never a pleasant feeling, so you can just imagine the mood in airports all across America in reaction to this week's mess. Well, according to a story from MSNBC, some airports are taking extra steps to help make American passengers as comfortable as possible.
Roughly 900 of the airlines flights have been canceled today, representing around 40% of its usual daily flight volume. The delays started on Tuesday when the American announced that it had to re-run inspections that it held last month after the FAA decided that the work done did not meet its standards.
On Tuesday the airline canceled 460 flights, and then another 1,094 yesterday, so it has been a tough few days for passengers trying to get to their destinations. All in all, over 100,000 passengers have been effected by the current situation at American.
It's not bad enough that air travelers are facing more and more delays, and airlines are canceling more and flights, but along comes airplane maker Boeing (NYSE:BA) announcing that its 787 Dreamliner is going to face a delay of at least 14 months until deliveries are made.
According to the AP report: "The Times of London reported on its Web site late Wednesday, quoting those familiar with the matter who asked not to be identified, that delays for 787 could reach 18 months, while the Seattle Post-Intelligencer put the delay at 14 months from the original goal."
What's with this industry? Why can't anything be on time?
With three airlines going bankrupt in the last week alone, the industry is a mess. It's no wonder Boeing announced the delay because it needs to really make sure that the plane is sound structurally. The Seattle Times had a story about airline woes and reported: "American, Delta and United airlines recently canceled flights to perform unscheduled inspections of certain aircraft, and US Airways found problems on some Boeing 757s after a wing part on one of its planes fell off during a flight."
With the busy summer travel season fast approaching, travelers better plan for even more delays.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/9/08.
The stalled Delta Air Lines (NYSE: DAL) / Northwest Airlines (NYSE: NWA) deal talks should regain momentum next week, provided Delta's management makes progress in talks with its pilots, The Wall Street Journal reported Wednesday (Subscription required).
Further, independent stock analyst C. Leonard Bauer, said that while the Delta / Northwest talks have been stalled at a traditional, formidable hurdle -- pilot seniority and pilot flight schedules -- "the stars now appear to be lining up to get this deal done."
Bauer said that since the talks began, recent data released indicates that the U.S. economy has continued to slow, and is most likely already in a recession -- never a good backdrop for airlines -- which depend on consumer disposable income for a portion of their revenue. Further, oil has resumed its 'regularly scheduled' movement: up, which has increased aviation costs by at least another 10-15%. Or as Bauer put it, "From a fuel cost standpoint, this is no time to fly commercial jets around less than half full." Oil rose $3.71 to $112.21 per barrel -- an all-time high -- Wednesday afternoon after an unexpected decline in U.S. weekly oil inventories.
American Airlines -- AMR Corp (NYSE: AMR) -- is once again canceling massive amounts of flights in order to inspect the bundling of wires in some of its airplanes. You may recall, that this is the same situation that led to around 400 cancellations last month, and this current inspection is estimated to affect even more flights, with up to 500 flights being canceled.
The current round of cancellations, which represents about 20% of total American flights, started late Tuesday afternoon, and was expected to last Tuesday night and into Wednesday, and possibly even beyond.
Passengers that were scheduled to fly the canceled American flights have been switched over to alternative American flights, or placed on other airlines that service the selected routes.
American Airlines parent AMR (NYSE: AMR) is freezing the hiring of management and support personnel. The move is a sign of distress at the carrier. It comes after Skybus, ATA, and Aloha Air have shut down.
According to The Dallas Morning News,a spokesman for AMR said, "I think it's no secret that the entire industry, including us, has been struggling to contain costs, mainly the cost of fuel." AMR may get an award for best understatement of the year.
According to the AMR 10-K, the company say it may be unable to raise money to retain sufficient liquidity. If fuel prices rise and passenger traffic drops due to the recession, that could become a real problem. AMR's operating income of $965 million in 2007 was tiny compared to its revenue of over $22.9 billion. Interest expense was over $900 million. The company has long-term debt of $9.4 billion.
Given how many large airlines have been through Chapter 11 during that last decade, AMR is not immune. It may not get through the year without a reorganization.
Douglas A. McIntyre is an editor at 247wallst.com.
If you have a trip planned on United Air Lines, Inc. (NASDAQ: UAUA) over the next couple of days, you may want to call ahead and verify that your flight is still on schedule. According to news reports today, the airline is going to be performing comprehensive inspections of 52 of its 777 aircraft.
Air travelers have been dealing with delays for the past week as all the major airlines are working to get all their planes inspected and given the "all clear" by the FCC. Last week, we saw major cancellations and delays for travelers flying American Airlines (NYSE: AMR) and Delta (NYSE: DAL) as those two carriers were having scores of planes inspected for potential problems with their wiring bundles.
The United inspections are looking at the fire suppression system in the cargo bays. The company wants to make sure that this system is working correctly, and notified authorities when it discovered that one of the five bottles in the suppression system was skipped over during the last inspection of the system.
For anyone who has plans to fly on American Airlines, AMR Corp (NYSE: AMR) or Delta (NYSE: DAL) today, you may want to call ahead and verify that your flights are still taking off as planned, as both airlines are canceling hundreds of scheduled flights today.
Both carriers are grounding a large number of flights as they continue to hold inspections on wiring bundles on some of their planes. For American, the company is planning to ground 132 of its flights today, while Delta is canceling 275 flights.
The Federal Aviation Administration is in the middle of a massive inspection project, in which it stated that it will be inspecting 10 safety orders (also known as airworthiness directives) at every single major airline by March 28. This comes after a scandal broke out over missed inspections at Southwest Airlines (NYSE: LUV) earlier this year.
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 toMarketWatch, 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.
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It's not bad enough that air travelers are facing more and more delays, and airlines are canceling more and flights, but along comes airplane maker 
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