Daily Archives: January 12, 2008

Airline Troubles: Mergers Won’t Keep Away Chapter 11 (UAUA)(NWA)(DAL)

The dumb money in the market is betting that one or two mergers will save air carriers like United (UAUA), Delta (DAL), and Northwest (NWA) from high fuel costs and a flagging economy.

Since 2002, Delta, Northwest, and US Air have all gone into Chapter 11. Go back a little more than a decade and the list expands to Braniff, Eastern, Midway, TWA, and Pan Am. The market respects no airline icons.

The carriers that are gone now, bankrupt or sold, went out of business due to three things: high labor, high fuel, and downturns in the economy. Labor unions have been beaten to a pulp. The other two forces are still in effect.

A look at the cost base of big airlines shows that a merger does not take much out in the way of expenses. Eventually reservation systems and airport personnel get cut. In-flight and ground crews stay about the same. Customer service goes to hell for two or three years. Clients are unhappy and some of them use competing airlines.

There is no virtue in the cycle and no evidence that mergers interrupt it.

Douglas A. McIntyre

Posted on: January 12, 2008 – 3:02 pm in Airlines, , ,

Ford (F) Bets Big On A Dinosaur

Ford (F) is about to release the latest version of its F-150 pick-up. Based on some data, the light truck has been the No.1 selling vehicle in the US for three decades. As is truck with most full-sized pick-ups, the product is extremely profitable on a per unit bases for the No.2 US car company.

A new version of the F-150 is not likely to do Ford much good and its is tough news that the company needs the truck to be successful for the company’s turnaround to succeed. Reuters quoted one source as saying "It’s their most important product, the product they make their most money on," said Global Insights analyst Rebecca Lindland. "It’s a vehicle that is very vital to their financial health."

The new F-150 faces a two-front war. High fuel prices and a weak economy are making vehicles with low gas mileage unattractive. Many car buyers will put off buying new products while GDP growth is flat or down.

Also, Toyota (TM) has come into the market with a full-size pick-up. So has Honda (HMC). GM (GM) and Chrysler already have big footprints in the business.

None of that is good for Ford.

Douglas A. McIntyre

Posted on: January 12, 2008 – 8:08 am in Autos, , , ,

Citigroup (C) To Raise Money: Another Version From The Press

The Wall Street Journal writes that Prince Alwaleed bin Talal and the China Development Bank as putting money into Citigroup (C), The CDB will probably contribution $2 billion.

Over at the FT, the story is very different. China would put in money along withthe Kuwait Investment Authority. To get to a total of $9 billion,  "$2bn to $4bn would be raised through a public placement of shares."

Perhaps the two papers should compare notes.

Douglas A. McIntyre

Posted on: January 12, 2008 – 7:41 am in Banking,