The airlines are dropping like flies
Posted
Apr 03 2008, 05:17 PM
by
Matt Koppenheffer
If you need proof that it's a tough time to be in the airline business, just ask the folks at ATA. After filing for Chapter 11 bankruptcy protection earlier this week, the airline bowed out completely after it lost a key contract.
Not enough proof? You can also talk to Aloha Airlines. On Monday, the Hawaiian airline also shut the cockpit door -- so to say. The sad message on its website simply reads: "Sorry... After more than 60 years of serving Hawaii Aloha Airlines is no longer operating."
What of the rest of the bunch? On Thursday Glenn Tilton, the CEO of United Airlines parent UAL, was talking up the need for industry consolidation, particularly in the face of $100 oil. Tilton was quoted as saying "The case for change including consolidation was compelling a year ago and has to be more so today." That could also probably be rephrased to read, "We really don't want to go bankrupt... again."
As compelling as the notion of consolidation is, making the dream come true has been an exercise in herding cats. UAL had been in merger talks with Continental and there were rumors that it was also discussing a deal with Delta. Nothing ever came of either, as aligning the specifics of a deal proved too difficult. A similar fate seems to be in the cards for the proposed merger between Delta and Northwest -- lack of agreement between pilots has brought that deal to stalemate.
And if all of this isn't bad enough, let's review the flood of airlines -- United, American, Delta, Southwest -- that have been grounding airplanes due to inspection and safety issues. Southwest is even accused of trying to cherry pick its FAA inspector to get one that would let them slide on maintenance inspection issues.
All of this adds up to a group of stocks that is far from an interesting investing opportunity. In The Motley Fool's CAPS community, UAL, for instance, has received 123 underperform ratings out of a total 238 ratings. One of CAPS' top players and one of the UAL bears, NightBengal, had this to say of the company:
UAL has made no significant progress in rebuilding the company after a long and drawn-out bout with bankruptcy. While not as bad off as [Northwest] and a couple other airlines, a [long-term] debt to equity ratio of over three is hardly anything to be proud of. ... I would not entirely rule out yet another trip into bankruptcy for these guys before their sought-after merger deal is even found, let alone cut. They need a sound, viable strategy that they are willing to back, and they need it quickly.
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