Wednesday, May 21, 2008

I Hate MD-80s Anyway!

Nothing terribly surprising here, ya know?

I still wonder about selling American Beacon Advisors when that group appears to make money. Its probably one of the few groups left at AMR that does. How quickly will that $480M be burned through to pay out severance packages and fuel costs?

I guess it makes sense, on a certain level, to get a good price for the asset before it declines with the rest of the ship. Got that. Better to get $480M for it now instead of $250M (or less) in bankruptcy. Fair enough. How come they never thought to divest this non-core business during the last financial mania, when they probably could have reaped closer to $1B for it in a spin-off? I mean, all of the carriers have been making (some) money for a little while, never mind that its a generally crappy business. Weren't they even looking at their portfolio in the good times, trying to figure out what they could sell off for a decent price? That $1B would come in handy right about now.

I see more aircraft leases on tap, across the globe, and just generally declining sales for both EADS and Boeing. I wonder how long it will take for that to hit their bottom lines, if it hasn't already. (I don't think it has already. What seems to be hurting them the most right now is slow delivery of their next generation of aircraft. How many Dreamliner orders get canceled in the next year? Hmmm.) I don't see airlines willing to take on these depreciating assets, not onto their own balance sheets, if they can lease, especially as they are scaling back. The MD-80s are paid for, but the A380s and Dreamliners were to paid for out of (soon to be decreasing) revenues. I can't see those kind of capital programs lasting very long in this energy environment. Oh, and I see smaller crews on every flight going forward, of course.

This is the kind of situation that begs for a corporate raider or activist investor (or whatever euphemism - liquidator? - you want to use). I guess they all gave up on the business after Gekko took that huge L on Bluestar. So here come the days of 3 major US carriers, whether customers like it or not. People better get used to taking cruises to Mexico and around the Caribbean instead of flights to Asia or Europe, unless they're among the ranks of the aforementioned activists.

This really is what the US economy needs though, unfortunately. Overshoot on the way up, overshoot on the way down. Leverage and cheap money never seem to end well, and I imagine that's for a reason. How long until that lesson is forgotten?

Update: The party is over at, courtesy of Heidi Moore. I see my 3 carrier remark echoed. THAT is a long overdue move.
Maybe I'll go transfer that last $1305 into the emergency fund tonight...

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