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Consolidation among low-fare carriers to gain "critical mass"
December 13, 2006
AirTran Proposes Take-Over of Midwest | news.airwise.com
• Smaller low fare carriers don't have the national scope of Southwest
• As a result, they cannot compete well for high yield business travelers, whose companies are increasingly mandating the "best available fare"
• With large domestic and international networks legacy carriers have an advantage in frequent flyer benefits, often the tipping point in the a decision process when fares are similar
• The low fare carriers need to consolidate to better compete as legacy carriers downsize
• This merger would be a first step in that process -
December 13, 2006
Giant Jet Sets off Fuel Tank Concerns | www.usatoday.com
• The A380 has been certified by European and US authorities for operation by foreign carriers into the US
• However the A380 does not incorporate new fuel tank safety rules adopted by the US in 2004 after the 1996 TWA flight 800 explosion
• Taken to an extreme, this could preclude US carriers from acquiring the A380
• UPS, with 10 orders, is the only US carrier with remaining A380 orders after FedEx cancellation. The potential for future regulatory action and expensive retrofits could influence their re-evaluation decision process that is currently in process. -
Continental Likely to Acquire, Rather than be Acquired
December 12, 2006
Continental Shares Rise on Merger Talk | news.airwise.com
• A "Golden Share" in Continental is held by Northwest, who can nix any acquisition of Continental
• Continental could acquire someone else without approval, but change of control would require approval of Northwest, which would not come without compensation -
US Airways Has Gained Supporters for Merger
December 8, 2006
Some Delta Creditors Form Separate Group | news.airwise.com
• Delta is now officially in play, and this group of creditors will force consideration of the USAirways offer, which improves their expected return
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Indian Market a Key Target for Airbus
December 8, 2006
Airbus plans to invest $1 billion in India over next decade | www.iht.com
India will be one of the fastest growing aviation markets in the world
Airbus wants to be the major player in India, and is outinvesting Boeing with a $1b to $200M committment
Investment in country is seen as a step in that direction -
December 8, 2006
American Considers Fleet Upgrade | www.dallasnews.com
• American needs to replace 303 MD-80s in service with more efficient aircraft
• Boeing and Airbus are both contemplating the next generation of their narrow body product lines that will obsolete existing products in the 2012-2015 time frame
• American study will balance immediate savings versus long-term competitive advantage -
Another Blow to the A380 Program is Looming
December 7, 2006
Thai Airways May Cancel Airbus A380 Order | news.airwise.com
• Airbus troubled A380 superjumbo program may take another hit
• Thai Airways is demanding additional compensation for delays
• Boeing is waiting in the wings offering the 747-8
• Another cancellation would severely damage the already weak reputation for the A380 program -
Low Fare Carrier Alliances Make Sense
December 6, 2006
Frontier Interested in Other Partners | www.forbes.com
• An area low fare carriers are at a disadvantage to legacy carriers is the breadth and depth of frequent flyer programs for business travelers, many of whom prefer to consolidate points on one carrier
• Strategic alliances provide additional opportunities to accrue and redeem points, making low fare carriers more competitive with legacy carriers.
• Strategic alliances can also provide additional feeder traffic through joint fares and routes that facilitate easy connections on two carriers
• Additional alliances are likely, as low fare carriers seek "critical mass" in frequent flyer benefits to compete with legacy carriers -
But Don't Forget that Delta's CEO will be Leaving
December 6, 2006
US Airways won't fight over Delta deal | www.usatoday.com
• Doug Parker is positioning the take-over offer with creditors
• He has indicated that he won't fight Delta in bankruptcy court to make the deal without Delta management cooperation
• With Delta's CEO Gerald Grinstein's announced departure after emerging from bankruptcy, would his successor take such a hard stand to remain independent?
• The decision is out of Delta's control, with the creditors.
• Will a negative stance by Delta's management team result in creditors accepting the deal and bringing in a new team?
• Boeing holds a trump card as a key creditor, and could support or nix the deal based on its own perceived self-interest. -
ILFC Switch Indicates A380 Freighter in Trouble
December 6, 2006
Airbus says A380 customers 'upset' but onboard, backs freighter despite ILFC switch | www.atwonline.com
• ILFC is Airbus largest single customer
• ILFC sees no potential market for leasing the A380 freighter, and has changed its order to passenger versions
• UPS, the only remaining customer for the A380F, is still in the midst of an evaluation of the product.
• These are signs that the A380F is a market failure, and unlikely to sell in significant numbers -
Is the A350XWB to Little Too Late?
December 6, 2006
Airbus Launches A350 Sales Push But Tempers Hope | online.wsj.com
• Airbus has launched the A350XWB
• It is still playing "catch-up" technologically with the 787
• It will need $15.5 billion to complete the program
• Obtaining that cash entails massive restructuring and a likely capital increase
• French state funding is available, but problematic given WTO dispute with Boeing over subsidies
• Airbus needs a success in the middle market, but is behind the power curve and well behind Boeing in the "sweet spot" of the market -
Bellweather Win for Boeing, Blow to Airbus
December 6, 2006
Lufthansa buys 747-8s | online.wsj.com
• Lufthansa is an ideal launch customer for the passenger version
• This is a blow to Airbus, as LH has not purchased a new Boeing aircraft in two decades
• Boeing's lead in orders over Airbus is growing -
Will Alitalia join Air France-KLM?
December 6, 2006
Italy sells down Alitalia stake | asia.news.yahoo.com
• Rumors of an Alitalia sale to AF-KLM have resurfaced, as the carrier's performance continues to stagnate
• The announcement of the Italian government selling 49.9% could be a precursor to an acquisition -
Railroads Remain Vulnerable to Terrorist Attacks
November 30, 2006
U.S. Screening Railroad Luggage Under Pilot Program | www.bloomberg.com
• Pilot programs for luggage inspection have been tried in several area
• No systematic screening process exists, as for airline baggage
• As a result, it would be easy for a terrorist to bring explosives or biohazards onto an aircraft
• Five years after 9-11, reasonable people would hope that our transportation security would be more secure than it is. -
Hostile Takeover Attempt Gains Critical Audience
November 30, 2006
US Airways Expected to Present Merger Offer for Delta This Week | www.nytimes.com
• Delta, in bankruptcy, has rebuffed USAirways merger offer, indicating that it would rather stand alone
• USAirways has gained an audience with Delta's unsecured creditors, who have gained significant value -- Delta's bonds have risen significantly since the USAirways offer
• It appears that creditors will provide USAirways strong consideration, which will be difficult for Delta to counter if USAirways can convince creditors that the $1.6 billion in synergies it projects for the merger work to their benefit -
Sorting Out Potential Partners for Continental
November 29, 2006
Continental keeps wary eye on merger bids | www.chron.com
• The USAirways Delta proposal signals a new wave of industry consolidation
• Continental is well positioned to acquire either Northwest or United to add Pacific routes and additional domestic capacity to its network.
• Each has advantages and disadvantages, which Continental will need to evaluate, and may be dictated by United's actions
• The chess game is on, with the USAirways-Delta proposal the opening move. Continental's options may depend on the moves of United and other competitors, and will need to be aggressive to determine its own destiny -
The Low Fare Disadvantage is Network Reach
November 17, 2006
AirTran, Frontier form Alliance | www.usatoday.com
• Frequent flyer loyalty programs keep some travelers on legacy carriers instead of low fare carriers
• Two geographically diverse low fare carriers have formed a frequent flyer alliance to expand geographic reach in an attempt to woo additional customers
• Compared to the global alliances legacy carriers offer, this alliance pales by comparison, but is a step in the right direction
• Look for additional alliances and international tie-ins in 2007 -
An Early Strike to Avoid Being Shut Out
November 16, 2006
US Airways Proposes to Mege with Delta | online.wsj.com
• Consolidation among legacy carriers appears inevitable
• USAirways could be left out without a dance partner
• A preemptive strike on Delta could change the pattern of consolidation and whom merges with whom
• This merger will not be easy to pull off due to antitrust and operational concerns
• Doug Parker is making a bold move to avoid being left out -
Full Court Press to Secure Emirates Order Underway
November 15, 2006
Boeing looks at boosting composites to lighten 747-8I | www.atwonline.com
• The Boeing 747-8i is still seeking a launch customer
• Emirates is rumored to be considering canceling half of its A380 order in favor of the 747-8i, but requires Dubai-West Coast US range
• Boeing's actions to lighten the aircraft and increase range are clearly a response to Emirates, whom it is courting as a key customer
• A Boeing win, with A380 cancelations, would send a shockwave through Airbus and the industry -
November 13, 2006
Boeing Loosens Airbus's Brazil Hold | online.wsj.com
Two order switches from Airbus A330/A340 family to Boeing 777s from Emirates and TAM underscore Airbus' weakness in the wide-body family
With the A350XWB not likely to see production before 2012, this provides Boeing a significant market advantage in the near term
The Boeing 777 remains more cost-effective in its range than the Airbus 330-340 series, and is outselling those models by a wide margin
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