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.
Yes, expectations are high and often stated in certain UAL pilot circles that want to rewrite ALPA merger policy and therby lessen the importance of career expectations in favor of some sort of relative position formula.
I have not heard of any such thing. Perhaps you are refering to former ALPA members of US Air that wanted DOH?
First, Allegheny Mohawk is the precedent and the minimum required by law at this point. ALPA merger policy and the CBA at UAL both address that precedent as well. To be quite honest, the merger policy at ALPA simply sets the protocol for the process. I think it naive to think that if a merger happened that it would not go to arbitration, and that the arbiter would be bound by both the policy and precedent.
How does the old saying go: If no one is happy then the seniority integration must be fair!
No. In fact, I'm fairly sure I said that CAL's balance sheet is probably not where they want it. But to imply that it's a "Piece of Chit" airline on the verge of bankruptcy, using obscure references is cause enough to raise the BS flag.
I get your point....your Dad didn't want you working here....you're in a better place. Understood. Moving on.
No. In fact, I'm fairly sure I said that CAL's balance sheet is probably not where they want it. But to imply that it's a "Piece of Chit" airline on the verge of bankruptcy, using obscure references is cause enough to raise the BS flag.
I get your point....your Dad didn't want you working here....you're in a better place. Understood. Moving on.
I dont think you understood (I was not clear). CAL was a "piece of chit airline" until Bethune got there and fixed things. You must not have been there during the Lorenzo days or you would have understood (except scabs). Now UAL is the piece of chit airline that CAL used to be under Lorenzo. I dont think that I am in a better place.
I dont know how you would have come to that conclusion. You sound a little defensive. If you were say that UAL sux, i would agree with you 100%. Lighten up. We can even make a little side bet to see who ends up in bankruptcy court first and get some of that Obama/Federal Reserve Bubble Money.
I dont know how you would have come to that conclusion.
Quote:
(I was not clear).
About sums it up. No bets. I have friends at UAL with families.....I don't know if UAL is bound for bankruptcy or not. I could probably find some stock picker or some news article implying such, but I wouldn't want to quote it as fact.
Nothing would surprise me in the airline business at this point. With the exception of a few majors (ALK, LUV) and several regionals, these airlines are all so debt laden and pathetically managed anything is possible, CAL included.
Seems like the true measure of staying alive is the ablilty to kick the can down the road, continue to renegotiate debt and hope your competitors are unable.
Probably the best post in this thread. IMO, talking about someone else's carrier going out of business is just whistling past the graveyard, because we really aren't sure what the future holds in this business. Today's darlings may be tomorrow's dogs.
Daytripper, UAL's on an unobstructed trajectory to join Eastern, Pan Am, and Branniff.
"I had a dream",that ALPA national had united this "brotherhood"of pilots.
They decided to collectively "force" our respective managements to raise the fares so that they could give us a fair wage. Since it would be collectively done, the pax would have to eat it just as we do when the doctors,lawyers, butchers and bakers pass the bill on to the customer...
Then we would be all happy,and no one merges or goes t/u ,period end of story.
Could we make this a reality??
Please don't give me the story of collusion and price fixing, because no revolution ever started legally.
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