Southwest Airlines (LUV) announces it's placed an order with Boeing (BA) valued at nearly $19B to buy 150 of its 737 MAX airplanes and an additional 58 737s, bringing up its total firm orders with the company to 350 for 2012 through 2022. The carrier becomes the first customer of Boeing to finalize an order for the fuel-efficient 737s.
Dow Jones Indexes (CME +0.4%) reveals on a blog post covering the airline sector that it pulled AMR out of a number of indexes including - most notably - the Dow Jones Transportation Average. In its place, the folks at Dow Jones have slotted in Alaska Air Group (ALK -1.8%) on the strength of its +$2B market cap.
Shares of American Airlines (AMR) are halted (yet again) after tripping up a circuit breaker. It's been almost non-stop on-again, off-again trading in AMR ever since its bankruptcy filing because as a Russell 1000 stock it's governed by a trading rule that fires up a 5-minute pause anytime the transaction price moves 10% or more in the preceding 5 minutes. Pundits call the rule "absurd" as they beg the SEC to change the logic for low-priced stocks. For the record, AMR is up 61% on the day or about $0.41.
The battle for DFW: JetBlue (JBLU +4.1%) says it will add 3 daily flights to the Dallas-Forth Worth airport with service slated to begin May 2012. It's just the latest move in an ongoing chess battle between carriers strategizing to take advantage of an anticipated reduction in AMR's capacity.
Delta Air Lines (DAL +1.1%) announces it's entered a strategic agreement with carrier Gol Linhas (GOL ++5.1%) to leverage each other's strengths in Brazil and Latin America. Under the terms of the agreement, Delta will kick in $100M to GOL's coffers and receive a seat on its board of directors.
FAA chief Randy Babbitt yesterday resigned, three days after being arrested for drunk-driving. Babbit leaves an agency battling to introduce a range of safety rules and initiatives, including improved pilot training. Deputy head Michael Huerta has taken over as the FAA's acting chief.
The IATA warns the airline sector could makes losses of $8.3B next year if a failure to resolve the eurozone debt crisis causes economic turmoil. The organization's main prediction for 2012 is for a profit of $3.5B, down from a prior forecast of $4.9B. (PR)
Boeing's (BA +0.3%) financial arm warns that airliners are likely to face using the bond market more often for financing purchases with European banks dramatically scaling back their lending to the sector. The company estimates that 10% of plane deliveries in 2012 will be financed through bond and equity issuance, up from 5% in 2011. Potential winners in the transition could be companies on the leasing end of the business, as buying planes becomes a trickier process for companies both large and small: AL, AYR, ACY, AER, FLY.
Ticonderoga's James Higgins calls American Airlines' (AMR) ability to finance its operations during bankruptcy with its plush $4.1B cash position a strong driver to keep the firm independent through the process. "By doing it this way and by doing it now, they are going to retain more power over the process."
Southwest Airlines (LUV +3.8%) CEO Gary Kelly weighs in on the state of his firm in a frank letter to employees, seeing a major challenge for LUV emerging from the transformation of legacy carriers to "better versions with lower costs. Kelly on DAL, UAL, and AMR: "...over the longer term, we're going to face a more formidable opponent, just like we now face with United, who is performing the best they have in 20 years, and also Delta, also performing very well and in some ways better than Southwest Airlines."
JetBlue's (JBLU +5.5%) winning bid to nab 8 landing slots at LaGuardia and Washington Reagan could rattle rivals if the carrier sets up a shuttle service between the two airports. Delta Air Lines (DAL +2.7%) booked $49M in revenue over the route in the 9 months following Q2 2010, while US Airways (LCC +5.4%) tallied $58M. But if JBLU replicates its presence in the National-Boston market, fare prices could drop 30% as competition heats up.
US Airways' (LCC -0.7%) pursuit of AMR could get a healthy push if the carrier needs a debtor-in-possession loan, according to Wolfe Trahan analyst Hunter Kealy. Eyeing AMR's relatively slim $4.1B in cash it has to fund a restructuring, Kealy notes a DIP lender will want "aggressive action" from a reminted AMR including a strategic combination with another airline.
AMR (AMR -60.5%) crashes and burns following its bankruptcy filing, while airline ETF FAA is -4.1%. AMR also names 22-year company veteran Thomas Horton as CEO and Chairman to succeed Gerard Arpey, who plans to retire. Horton was named president of AMR and American Airlines in July 2010. (PR)
Shares of JetBlue (JBLU) show the biggest reaction among U.S. carriers to American Airlines' (AMR) bankruptcy filing, losing 4.9% premarket. UAL, DAL, and LUV are all trading in slightly positive territory premarket.
Rodman & Renshaw sees 57% upside potential in shares of Southwest Airlines (LUV -1.9%), lining up an Outperform rating and $12 price target on the carrier. A report from the firm points to capacity cuts at Southwest that will accelerate in Q2 and position it to "execute on pricing and margin expansion next summer."
The Guggenheim/NYSE Arca Airline ETF (NYSE:FAA), the "Fund", seeks investment results that correspond generally to the performance, before the Fund's fees and expenses, of an equity index called the NYSE Arca Global Airline Index (the “Airline Index” or the “Index”). The Fund will at all times invest at least 80% of its total assets in common stock, American depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that comprise the Index and investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities that comprise the Index. Guggenheim Advisors, LLC (the "Investment Adviser") seeks a correlation over time of 0.95 or better between the Fund’s performance and the performance of the Index. A figure of 1.00 would represent perfect correlation. The Fund, using a low cost “passive” or “indexing” investment approach, will seek to replicate, before the Fund’s fees and expenses, the performance of the Airline Index. The Airline Index is a modified equal-dollar weighted Index designed to measure the performance of highly capitalized and liquid U.S. and international passenger airline companies identified as being in the airline industry, as defined below, and listed on developed and emerging global market exchanges. The Fund’s Index Provider, Archipelago Holdings Inc. (“Arca” or the “Index Provider”), an affiliate of NYSE Euronext, Inc., defines “developed markets” as countries with western-style legal systems, transparent financial rules for financial reporting and sophisticated, liquid and accessible stock exchanges with readily-exchangeable currencies.
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