Boeing Soars While Airlines, Ambac Fall

Includes: AMBC, BA, DAL, YHOO
by: Grace Cheng

While US airlines are reporting losses, the latest being Delta Air Lines Inc. (NYSE:DAL) and Northwest (NWACQ) which lost $6.4 billion and $4.1 billion respectively, Boeing (NYSE:BA) reported a 38% jump in profit to $1.2 billion as sales - and backlog of orders grew. The US airlines blamed high fuel prices for the losses, but at the same time Boeing has seen a 39% rise in operating profits in its commercial airline division with revenue growing by 8%.

These numbers would seem to indicate that there are many airlines around the world whose profit is far less affected by high oil prices thanks to a weak US dollar and that once again US companies with strong exports are turning up good profits despite the economic slowdown in the US.

On the tech front, even though Yahoo (NASDAQ:YHOO) announced a triple digit profit growth up from $142 million last year to $542 million this Q1, the catch is that about $401 million of that profit was due to the IPO of Chinese e-commerce site Alibaba. In the end this leaves Yahoo’s “real” earnings more or less in line with expectations - and nearly unchanged from last year’s Q1 - and gives it little room to negotiate with Microsoft.

Investors were clearly not impressed, and Yahoo’s stock fell after the announcement. Microsoft’s (NASDAQ:MSFT) Steve Ballmer said that Yahoo’s results don’t change “the value of Yahoo to Microsoft”. One thing that both Yahoo and Google’s (NASDAQ:GOOG) earnings reports have shown is that online advertising seems to still be going strong and that the US economic downturn hasn’t affected the fundamentals of this advertising medium as much as some feared it would.

Financials seem to still be bleeding, with Ambac (ABK) announcing a $1.66 billion, or $11.69 per share loss due to $3.06 billion in charges. Much of these losses were due to writedowns on the CDOs which Ambac insured and the calculations of probability of default which would require them to payout on the insurance claims.

US mortgage applications also plunged last week as interest rates for home buyers continued to rise. This rise in rates is in contrast with the Fed’s overnight rate which has fallen substantially in the past months, and shows that banks’ appetite for risk has decreased and their risk premiums have increased appropriately.