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LAN Airlines “window shopping”; United prices public offer; ExpressJet up again

18-Nov-2009

North and South American carriers’ stocks were mixed on Tuesday (17-Nov-2009), with the AMEX Airline Index (+0.4%) rising only slightly as a result. The Dow (+0.3%) was also up slightly at the end of trading, counteracted by an increase in oil prices (+0.3%), to USD79.14.

LAN Airlines “window shopping” for acquisitions or merger partners

LAN Airlines (-0.1%) COO, Ignacio Cueto stated during trading that the carrier is currently looking for potential acquisitions or merger partners, to expand its presence in Latin America. Mr Cueto stated LAN is currently “window shopping”, but there is nothing concrete as yet.

The Cueto family, which currently runs LAN through an agreement with investor, Sebastian Pinera, also stated they may purchase some of Mr Pinera’s stake in the carrier if he is elected Chilean President in Dec-2009.

ExpressJet continues to rise on stock upgrade

ExpressJet’s (+7.5%) stock price continued to grow on the back of news the day prior that they have signed a deal with United Airlines (-0.4%) to operate 22 ERJ-145 aircraft under the United Express brand. Under the deal, United will also receive warrants for 2.7 million of the carrier’s shares.

Further assisting its stock price, analysts at Avondale Partners upgraded ExpressJet’s stock from ‘Underperform’ to ‘Market Outperform’, and increasing the carrier’s price target to USD14.50.

According to the analysts, “cool efficiencies” should allow ExpressJet to be profitable by 2Q2010. Avondale expects the carrier to report a loss of USD1.72 a share for 2009, but a profit of USD0.47 a share for 2010.

United Airlines prices public offering

United Airlines (-0.4%) announced it has priced its public offering of USD810 million aggregate principal amount of enhanced equipment trust certificates, generating USD290 million in new liquidity. The USD810 million financing is comprised of USD697 million of Class A certificates with an interest rate of 9.75% and a final expected distribution date of 15-Jan-2017 and USD113 million of Class B certificates with an interest rate of 12.0% and a final expected distribution date of 15-Jan-2016.

United intends to use the net proceeds to repay at par all of the USD493 million aggregate principal amount of the equipment notes related to its outstanding 2000-2 EETC, and will use the approximately USD290 million of remaining net proceeds, after accounting for all transaction-related fees and expenses, for general corporate purposes.

JP Morgan Securities Inc., Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. are acting as joint book-running managers for the offering with Citigroup Global Markets Inc., Credit Suisse Securities LLC and Deutsche Bank Securities Inc. acting as a co-managers, for the offering.

Meanwhile, Hawaiian Airlines (-2.3%) saw the largest fall in stock prices for the day, as the carrier’s negotiations with its pilots continue to stall. The National Mediation Board advised the carrier and its pilots on Monday that it will not act on the pilots request to declare a mediation impasse until mediation talks with Hawaiian are completed on 07-Dec-2009.

US carriers increasing fare surcharges

US carriers are currently increasing their fare surcharges for Spring 2010 and Summer 2010 schedules:

  • US Airways (-0.9%) has added a 5% surcharge on all US services on or after 08-May-2010, to protect the carrier in case of increases in fuel prices or other costs;
  • Delta Air Lines (-1.1%), Northwest Airlines and United Airlines have increased surcharges on busy periods during Mar-2010 and Apr-2010 from USD20 each way to USD30. Surcharges have also been increased to USD50 on the day after the Super Bowl;
  • American Airlines (-0.5%) and Continental Airlines (-0.5%) are yet to raise their surcharges.

According to Bestfares.com CEO, Tom Parsons, “the number of seats they've [US carriers] cut is allowing them to do crazy things," and that passengers should expect fares and/or surcharges to increase again next year, marking the end of fare cuts.

Brazilian carriers. GOL (+5.6%), and TAM (+4.3%) gained well. Air Canada B shares also rose, 3.7%.

North & South America selected airlines daily share price movements (% change): 17-Nov-09


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