Republic, American, US Airways down; FedEx, GOL, TAM rise. America share wrap

Biggest losses on Tuesday 8-Dec-2009 were suffered by Republic (-4.4%), American (-3.7%) and US Airways (-3.2%), while FedEx (+2.7%), GOL (+2.0%), and WestJet (+1.5%) were the main gainers on the day.

United Airlines upgraded by Jesup Lamont on basis of new aircraft orders

Following United’s announcement of 50 firm orders, for 25 Boeing 787s and 25 Airbus A350 XWB, along with purchase rights for another 50 of each aircraft, Jesup Lamont upgraded the common shares of UAL Corp to “Buy” from “Hold”. United’s stock was up 0.4% on the day.

The aircraft are for delivery between 2016 and 2019 and will replace the carrier’s older B777s, B747s and B767s.  The analysts stressed that, “more importantly, the number of seats that are coming out of the market are greater than the number of seats going back into the market, giving United enormous pricing flexibility.  Seat count will be reduced by 19% while range will increase by 32% with this new mix of wide-body aircraft.”

North & South America selected airlines daily share price movements (% change): 08-Dec-09

Jesup Lamont more upbeat on business travel outlook

Expanding on its analysis of United’s improved outlook as a result of its new orders, Jesup considered that “current trends continue to be positive.  We believe 2010 will see an increase in business travel that will enable United to be profitable (vs. our prior forecast of a loss).  We are estimating 2010 EPS of $1.50, up from our prior estimate of a loss of $2.26 per share.  The difference between our prior estimate and our current estimate is in pricing, which we estimate will improve due to a shift in mix from the back of the plane to the front of the plane.”

Fitch Ratings guardedly optimistic on outlook

Fitch Ratings’ general overview of the industry’s prospects for the coming year is guardedly optimistic: “After weathering two years of extreme operating pressure, the largest U.S. airlines approach 2010 with guarded hopes that a slow but sustained recovery in margins and cash flow generation can lay the groundwork for modest balance sheet repair and a stabilization of stressed credit profiles and ratings,” says the ratings agency. It does not see a likelihood of ratings upgrades “until clear evidence of a sustained industry revenue recovery emerges, perhaps not until 2011 or later.”

Fitch rates Continental’s convertible notes “CC/RR6” 

Fitch Ratings gave Continental Airlines’ new USD200 million senior convertible note issue a 'CC/RR6' rating. The notes mature in 2015, carrying a coupon of 4.5%. CAL is rated by Fitch with an Issuer Default Rating (IDR) of 'B-', with a Stable Outlook.

Fuel price risk: Fitch noted, “the 'B-' default rating reflects CAL's continuing vulnerability to demand and fuel price shocks as a weak cyclical recovery in airline industry revenue takes shape. Since mid-summer, CAL and the other large U.S. carriers have continued to report better year-over-year passenger unit revenue numbers.” In Nov-2009, CAL’s RASM declined 7%-9%, a significant improvement over the 15% -20% RASM decline through the second and third quarters.

Improved credit conditions: According to Fitch, improved credit market access in the third quarter has helped financing planning for 2010 aircraft deliveries. This raising is CAL’s second this year. CAL had projected unrestricted liquidity at USD2.5 billion, before the current notes issue.

TAM upgraded to “buy” by Banco Santander

TAM stock was up 1.5% after Banco Santander SA raised the stock to “buy”, as the prospect of higher yields promised profitability. According to the bank, “ongoing increases in Brazilian domestic airfares should lead to significant profitability improvement for TAM’s domestic operations.”