Ten rises in a row! Delta to launch private offering; United expects smaller RASM decline

The AMEX Airline Index (+1.4%) has risen for its tenth straight day, despite an increase in oil prices (+2.2%), to USD72.51. Stocks were assisted by a rise in the wider market, with the Dow (+1.1%) rising on the back of the Federal Reserve’s announcement that industrial activity rose 0.8% in Aug-2009, which was better than previously forecast.

Delta to launch private offering of secured senior notes to pay off debt

Delta Air Lines (+3.3%) rose after announcing late in the day that it plans to launch a private offering of USD500 million in secured senior notes due in 2014. The carrier stated it would use the capital gained from the offering, in addition to initial borrowings from new senior secured credit facilities, to repay its Northwest borrowings. Any remaining funding will be used for “general corporate purposes”.

The planned offering will allow Delta to better handle its USD904 million debt it will acquire once it receives a single operating certificate to allow it to fully integrate Northwest Airlines' operations into its own. The carrier expects to receive the certificate by the end of 2009.

Following the announcement, Moody’s assigned a Ba2 rating for the new senior secured financing.

United expects smaller decline in RASM in 3Q2009

United Airlines (+3.4%) meanwhile forecast mainline PRASM will drop somewhere between 17.8% and 17.8% year-on-year in 3Q2009. PRASM fell 20% in 2Q2009. The expected fall is partly due to a 3-4% expected year-on-year fall in traffic (RPMs), while capacity (ASM) is expected to be down 5.9%.

However, United’s unit operating costs are also expected to reduce by 19.7% to 19.9% over the period. Non-fuel expenses are meanwhile expected to be flat to -0.5%. 

The carrier also expects to raise approximately USD300 million during the quarter, and is looking into other cash raising options for 4Q2009. United forecasts it would end the quarter with approximately USD2.6 billion in unrestricted cash. According to JP Morgan, the expected cash level appears to be adequate and it is likely United will be able to refinance soon.

Following the announcement, Jesup & Lamont Securities improved its expected 3Q2009 loss for United to USD1 per share, compared to a previous forecast of a USD1.65 per share loss. JP Morgan also adjusted its forecast to a loss of USD1 per share, compared to its previous forecast of a USD1.79 per share loss.

FedEx falls

Meanwhile, FedEx (-1.7%) slipped despite a forecast by Marketwatch that the freight carrier will post 1Q2009 earnings of USD0.58 per share.

North & South America selected airlines daily share price movements (% change): 16-Sep-09