Position: Living out of a suitcase & stealing internet from the hotel bar
Posts: 1,953
Short term stock tip, upholding Mesa's injunction means good things for all the fee for departure carriers who depend on Delta contracts. The market has not figured this out yet.
I'm about to tell you how I know exactly when Continental Airlines will go bankrupt. You might recall my similar work on GM. I spent about two years explaining, quarter after quarter, that there was no way the company could escape bankruptcy. Even though such information can be incredibly valuable to stock traders, my work inspired a lot of anger from our subscribers, who didn't understand my reasoning had nothing to do with cars, or "America," but simply with mathematics. GM's enormous debt load ($172 billion at last count) couldn't be supported by the car company's dwindling market share and negative profit margins. At a certain point (I'd say 2006), it became mathematically impossible for GM to ever make enough money to repay its obligations. The interest payments were compounding faster than it could ever hope to grow the business, and it didn't have enough equity left to refinance.
These situations are tragic for investors, employees, and customers. There are no easy explanations for why companies sometimes end up in these "no way out" scenarios. Thus, it may seem crass or even immoral for me to demonstrate how these situations can be the best investment opportunities of all. But I'd ask that you, if only for a minute, put aside these "good neighbor" emotions. You see, when you buy a stock, an endless number of things might go wrong. As an analyst, it is impossible for me to identify every possible business risk. And as you know, sooner or later, everything that can go wrong will go wrong.
On the other hand, when you're researching companies that are truly stuck in "no way out" scenarios, there aren't any realistic alternatives. No matter what else happens, their debts and interest payments will come due. And that means you can know, with a far higher degree of certainty, what your investing outcome will be. And so, I ask you: Would you rather own a stock that may or may not increase in value? Or would you rather short a stock that you can know, for certain, will go bankrupt by a specific date in the future?
This kind of analysis has always appealed to me because of the certainty. Most subscribers don't know my very first newsletter, written in 1999, accurately predicted the demise of the original AT&T, which was the most widely held stock in America at the time. Most recently, I told my subscribers Continental Airlines will go bankrupt. And now I can even tell you when...
The company has $105 million of equity sitting under more than $12 billion worth of debt. It operates at a loss because its gross margins have fallen in half in only three years. Fuel costs and competition have rendered its full-service, high-cost, and unionized business model obsolete – much like what happened to General Motors. It has $900 million worth of lease and capital obligations coming due this year and only $2.7 billion worth of cash left. In 2011, 40% of its $6 billion in long-term debt will come due.
But the trigger for Continental's bankruptcy will be an obscure clause in its credit-card processing agreement with Chase Bank. The agreement requires Continental to maintain at least 25% of its current obligations in cash. Next year (2010), the portion of its long-term debt that's due in 2011 will become "current" – due within the next 12 months. That will cause Continental's current obligations to soar to nearly $7 billion. At the same time, its cash reserves will be falling. The collapse of the current ratio will trigger a cascade of debt defaults, pushing the airline into bankruptcy. Thus, Continental will go bankrupt at some point in 2010.
I know Continental can do nothing to avoid a default. It only has $105 million of equity left. That's simply not enough to restructure its debts. And it can't operate profitably enough to afford to repay its debts – it doesn't even have enough cash to pay for the planes it has already agreed to buy from Boeing. If you short the stock today, I'm 100% sure you will double your money in 12 to 18 months.
Position: Living out of a suitcase & stealing internet from the hotel bar
Posts: 1,953
Quote:
Originally Posted by Fly4hire
Dude,
ALPA has chased the dues dollars of regional carriers to the point of making them irrelevant at best as a national union, and incapable of representing the interests of legacy carriers in reference to Scope without legit DFR issues ref regional carriers they represent. Initiatives such as FFD are perfuming the pig they have created with being dues prostitutes.
Insult to injury is the regional contingent is so large and influential now they are in danger of taking control and any potential candidate for Praters job cannot **** them off (being a Scope Hawk) too much and get elected.
There is not only a conflict of interest in Herndons representational structure, but also possibly of any legacy MEC Ch running for the position.
Meantime we have pups with still wet ERAU degrees flying 76 seaters while the majors have 15 year F/Os.
And we did it to ourselves. Changing or booting ALPA is meaningless without electing MEC reps and officers who will hold the line and not keep justifying every continuing Scope concession we make.
Very good post. There is a way out of this mess. The way to go is to return to the very basics of trade unionism. If you look at "unity" as the foundation, the answer of getting all the code on one list (or at least adopting that goal as long term policy) fixes both the representational DFR issue and the scope issue as that policy is implemented.
There is absolutely nothing wrong, or illegal, about the policy that "all Delta flying will be performed by Delta pilots."
To illustrate this point just a little further, when Compass is split from the Delta MEC they will have an independent MEC which an agenda that includes getting more, bigger, airplanes. By DIVIDING pilots we create a conflict of interest.
Of course unifying the pilots removes the conflict of interest and would return flying to mainline.
Last edited by Bucking Bar : 07-02-2009 at 03:52 PM.
I'm about to tell you how I know exactly when Continental Airlines will go bankrupt. You might recall my similar work on GM. I spent about two years explaining, quarter after quarter, that there was no way the company could escape bankruptcy. Even though such information can be incredibly valuable to stock traders, my work inspired a lot of anger from our subscribers, who didn't understand my reasoning had nothing to do with cars, or "America," but simply with mathematics. GM's enormous debt load ($172 billion at last count) couldn't be supported by the car company's dwindling market share and negative profit margins. At a certain point (I'd say 2006), it became mathematically impossible for GM to ever make enough money to repay its obligations. The interest payments were compounding faster than it could ever hope to grow the business, and it didn't have enough equity left to refinance.
These situations are tragic for investors, employees, and customers. There are no easy explanations for why companies sometimes end up in these "no way out" scenarios. Thus, it may seem crass or even immoral for me to demonstrate how these situations can be the best investment opportunities of all. But I'd ask that you, if only for a minute, put aside these "good neighbor" emotions. You see, when you buy a stock, an endless number of things might go wrong. As an analyst, it is impossible for me to identify every possible business risk. And as you know, sooner or later, everything that can go wrong will go wrong.
On the other hand, when you're researching companies that are truly stuck in "no way out" scenarios, there aren't any realistic alternatives. No matter what else happens, their debts and interest payments will come due. And that means you can know, with a far higher degree of certainty, what your investing outcome will be. And so, I ask you: Would you rather own a stock that may or may not increase in value? Or would you rather short a stock that you can know, for certain, will go bankrupt by a specific date in the future?
This kind of analysis has always appealed to me because of the certainty. Most subscribers don't know my very first newsletter, written in 1999, accurately predicted the demise of the original AT&T, which was the most widely held stock in America at the time. Most recently, I told my subscribers Continental Airlines will go bankrupt. And now I can even tell you when...
The company has $105 million of equity sitting under more than $12 billion worth of debt. It operates at a loss because its gross margins have fallen in half in only three years. Fuel costs and competition have rendered its full-service, high-cost, and unionized business model obsolete – much like what happened to General Motors. It has $900 million worth of lease and capital obligations coming due this year and only $2.7 billion worth of cash left. In 2011, 40% of its $6 billion in long-term debt will come due.
But the trigger for Continental's bankruptcy will be an obscure clause in its credit-card processing agreement with Chase Bank. The agreement requires Continental to maintain at least 25% of its current obligations in cash. Next year (2010), the portion of its long-term debt that's due in 2011 will become "current" – due within the next 12 months. That will cause Continental's current obligations to soar to nearly $7 billion. At the same time, its cash reserves will be falling. The collapse of the current ratio will trigger a cascade of debt defaults, pushing the airline into bankruptcy. Thus, Continental will go bankrupt at some point in 2010.
I know Continental can do nothing to avoid a default. It only has $105 million of equity left. That's simply not enough to restructure its debts. And it can't operate profitably enough to afford to repay its debts – it doesn't even have enough cash to pay for the planes it has already agreed to buy from Boeing. If you short the stock today, I'm 100% sure you will double your money in 12 to 18 months.
Position: Living out of a suitcase & stealing internet from the hotel bar
Posts: 1,953
His simplistic approach fails to realize that to some degree airplanes should be self financing assets.
There is a very tangible reason why the next generation jets need to have 25% lower operating costs and equal, or higher, productivity. Because that savings needs to equate to the $300,000 to $1,000,000 a month (or more) it costs to buy the things.
IF Delta decides to buy 777-300's to replace 747's, the savings in operating costs & maintenance have to AT LEAST equal the payments, or else there is no reason to do the deal. Now when Delta does this deal the analysts will all write OMG! DAL CAP EX! in their Blackberries. But, they forget that the capital expense is less than the cost savings or the deal would not be done.
This is particularly true with Delta, who doesn't care how new a DC9 , or MD88, or 757 is. It is the numbers.
It is no new news that cardiac arrest in the airline business is when American Express cuts off your account to do credit card sales. That is what drove Delta to sell ASA (the most profitable part of the operation on a percentage basis) and eventually what forced Delta into bankruptcy to preserve liquidity.
Delta plans more Cincinnati flight cuts
Business Courier of Cincinnati
Thursday, July 2, 2009
Delta Air Lines said that planned capacity reductions to take place in September will result in about 50 fewer daily flights out of Cincinnati.
Many of the cuts, such as direct flights to London and Frankfurt, already have been announced. Others, such as to Dayton, have not, but have been pulled from the schedule, spokeswoman Susan Elliott said.
In total, peak-day departures out of the Cincinnati/Northern Kentucky International Airport will decline to roughly 215 in September, from 270 in June, following a decline in demand. The carrier cited high fuel prices, the swine flu epidemic and the recession for the drop in leisure and business travel.
The tabulation followed a letter by Delta CEO Richard Anderson to Ellen van der Horst, CEO of the Cincinnati USA Regional Chamber. The chamber and dozens of business owners on June 23 sent a letter to the carrier asking it to reconsider plans to discontinue its direct flights to London and Frankfurt.
In his responding letter, Anderson said the London and Frankfurt routes experienced “disproportionate yield declines.”
“During the month of June, the Cincinnati-Frankfurt route experienced the largest yield decline of any major route in our European network. This has been a trend we have seen over the past few months as corporations in Cincinnati and elsewhere have reduced corporate travel,” he wrote.
While Delta made efforts to strengthen the markets, the trends continued, he wrote. Passenger revenue slipped by 20 percent in the first four months of 2009, compared with a year ago, while oil prices are up 20 percent.
In closing, Anderson said he remains committed to the airport, Delta’s seventh-largest
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