AMR

AMR’s Equity Still Practically Worthless, Merger Will Not Save Airline

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/284200-amrs-equity-still-practically-worthless-merger-will-not-save-airline Since we published our bearish piece on AMR (AMR), the parent of American Airlines, titled, “Is AMR’s Equity Practically Worthless,” the stock has fallen nearly by half. At Valuentum, we place considerable emphasis on a firm’s competitive advantages, how their competitive position fits into industry structure, and a valuation assessment based on a rigorous discounted cash-flow process. Our take on AMR across all of these fronts remains decidedly negative, and due to the repeated questions we’ve received, we are reiterating our somewhat controversial call that AMR’s equity is practically worthless – only option value remains. There have been talks recently about AMR potentially merging with International Group, the owner of British … Read more

Ignore Debt Ceiling News, Focus on Corporate Earnings

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Simply put, the United States is not going to default on its debt. In other words, we think any market action resulting from the debt-ceiling issue will be irrelevant in coming months, and resolve itself in due time — as it has with any other crisis. Further, we remain unconvinced that this topic is a legitimate concern for long-term equity investors. The fact that America has a large national debt (and a problem with entitlement programs) is well documented in every history and social-studies textbook in grammar schools across the country; how can this be something that will blindside the markets? We’re not talking about derivatives on complex mortgage instruments here. The debt-ceiling deadline is purely a political issue, one … Read more

Our Take on United Techologies’ Second Quarter

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United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in … Read more

United Continental and US Airways Troubled by Fuel Costs

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United Continental (UAL) reported a second-quarter net profit of roughly $1.49 per share Thursday (net income fell 12%), excluding special items, with passenger revenue advancing over 10% compared to the same period a year ago – unit passenger revenue improved 9% from the prior year period. The airline continues to face the burden of rising fuel costs, as second-quarter fuel expense increased a whopping 45% on a year-over-year basis. Unit costs, excluding special items advanced over 11%, driving lower profits from the prior-year period. We view United Continental’s liquidity position as adequate, with $8.6 billion in unrestricted cash, cash equivalents and short-term investments on hand as of the end of the second quarter. We’re also quite pleased with the carrier’s continued … Read more

AMR’s Second-Quarter Results: Good News for the Shorts

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AMR Corp. (AMR), the parent of American Airlines, reported dismal second-quarter results Tuesday, as the rapid escalation in fuel prices pushed it into a deep loss during the period. Though revenue rose 8% from the same period a year ago, the company reported a net loss of $286 million, or $0.85 per share, which compares to a net loss of $0.03 per share last year. Due largely to its fuel-inefficient fleet, the carrier paid nearly 31% more in fuel costs during the period from last year’s quarter, amounting to an incremental $500 million-plus headwind. American’s mainline load factor fell 0.3 percentage points from the year ago period, suggesting that demand is not keeping up with capacity additions. We maintain our bearish … Read more

Are Boeing’s Competitive Advantages Waning? We Think So.

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Michael J. Mauboussin, when working at CSFB in 2002, published an excellent piece on the concept of an economic moat. Warren Buffet is often given the credit of coining the term. Morningstar (MORN) and other research firms like Valuentum (via its ValueCreation rating) have embraced this compelling idea, embedding the concept in their research framework. In this article, we discuss whether we think Boeing (BA) has lost its moat, in light of the recent split-order of 460 planes from American Airlines (AMR). First of all, we think the market is completely misunderstanding the long-term implications of the recently announced and massive AMR order to replace its narrowbody fleet (which was split between Boeing and Airbus). Though receiving orders is, in itself, positive, this particular order comes at the expense of Boeing’s exclusivity with AMR — the carrier currently flies … Read more

AMR Likely to Split Massive Order Between Boeing, Airbus

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280307-amr-likely-to-split-massive-order-between-boeing-airbus As we outlined a few weeks ago in “AMR’s Big Order to Pressure Cash Flow, Boeing in Precarious Position,” we indicated the increasing likelihood that AMR (which holds American Airlines) may split a massive $15 billion-plus order between Boeing (BA) and Airbus to replace its aging fleet of narrowbodies. This would represent a huge shift at the major carrier, as AMR currently flies all-Boeing aircraft. Verbatim from our July 1 report: Boeing is in a rather precarious position. Airbus has claimed all along that it will capture customers currently flying the 737 with its A320neo (new engine option), an upgrade to its A320 that has the option to sport more fuel-efficient engines. The … Read more

Yield Outlook Deteriorates for Airline Stocks

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280098-yield-outlook-deteriorates-for-airline-stocks As we had outlined in our industry primer for airlines, the yield (pricing) environment for the group is treacherous and remains under perpetual pressure. The International Air Transport Association [IATA] released its July 2011 Airline Business Confidence Survey. Importantly, the IATA commented on the outlook for yields, which we reproduce below: While both passenger and cargo transport businesses saw improving yield performance during the second quarter of 2011, the trend is flattening. With demand-supply conditions weakening and concerns that markets may not bear further fare/rate rises, prospects for yields over the year ahead look flat. With over 80% of respondents reporting increased input costs during Q2, clearly high fuel costs have … Read more

Merger Mania in the Brazilian Air Travel Market: A Net Positive

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/278846-merger-mania-in-the-brazilian-air-travel-market-a-net-positive As long-time followers of Valuentum know, we’re not too fond of airline stocks. Essentially, we view them as merely a speculative bet on the trajectory of economic growth and the direction of jet fuel prices. But while the price of black gold remains largely out of airline executives’ control, it’s hard not to like the economic growth prospects of the Brazilian air travel market, which has been on a tear during the past several years thanks in part to heavy discounts on fares offered by low-cost carriers such as Gol (GOL). Plus, the 2014 World Cup and the 2016 Olympics, both to be held in Brazil, will serve as temporary and … Read more

What Does $150 Oil Mean for Airline Stocks? New 52-week Lows.

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/277933-what-does-150-oil-mean-for-airline-stocks-and-the-airline-etf-expect-new-52-week-lows In “Get Ready for $150 Oil,” Barron’s predicts an oil shock will occur in spring 2012, with the black commodity reaching a record average monthly price of $150 per barrel, with spikes to $165 and $170 along the way. If this prognostication proves correct, airlines are in for a world of hurt. Before we get started on just how painful this shock could be, we invite airline stock speculators to take a read of our industry primer on the airline industry.  Jet fuel prices generally represent the largest component of an airline’s cost structure, and we estimate that for every $1 increase in the price of crude oil, it costs the global airline industry about $1.5 to $1.7 billion more. … Read more