07-May-2010 2:52 PM

United loses 9.2%, SAS down 10.8%, GOL off 8.6%, aircraft lessors lose 9% as debt troubles market

Analysis

Global airline, airport and aviation supplier shares across the world were hit yesterday, 6-May-2010, amid elevated nervousness in economic circles over debt issues in Europe. Despite a better outlook generally for aviation, as strength appeared to be returning to forward bookings, any threat of economic softening is disproportionately harmful to airline stocks.

United, SAS and GOL suffered the largest drops, but rises in any part of the aviation sector were rare, from the US, Europe, South America to Asia and the Middle East. The New York Stock Exchange's Arca airline index shed 10.4%; after reaching its highest level since mid-2008 in April, as analysts pumped merger prospects. The index is off 21%.

European airlines

Europeans were least badly hit, with markets mostly closed by the time the near-1,000 point slump in the Dow Jones index occurred. SAS, whose heavily discounted share issue earlier this week was a little oversubscribed, saw its price slump accordingly, by 10.8%. But others, including the big three, of British Airways (-2.1%), Air France-KLM (-1.9%) and Lufthansa (1.3%) were less badly affected, after steep falls earlier in the week.

Other than SAS, the biggest airline falls were Eurofly (-7.6%), Spanish LCC Vueling 9-6.9%) and Cimber Sterling (-6.3%).

Europe selected airlines daily share price movements (% change): 06-May-2010

The Americas' airlines

In the Americas, all airline stocks fell. United was off 9.2%, Brazil's GOL was close behind at 8.6%, despite issuing a strong first quarter 2010 report. US Airways (-7.8%), Continental (-7.7%), Air Canada (-7.3%), American (-5.2%), Delta (-5.0%), Republic (-4.2%), Southwest (-3.5%) were the steepest drops for north American carriers. Low-cost operators were generally less badly hit, with Allegiant (-1.7%) the smallest drop, WestJet -2.1%, jetBlue -2.2% ad AirTran losing 2.5%.

In Latin America, TAM shed 5.6% of value, COPA, 5.0% and LAN was off 3.0%.

GOL 1Q results sparkle

GOL's operating income (EBIT) jumped by 82.1% year-over-year, to BR$191.4mm, accompanied by a margin of 11.1%, 4.1 ppts wider than in 1Q09 (6.9%) and 3.7 ppts up on 4Q09 (7.4%). According to the carrier, "the result reflected growing demand on the domestic and international markets and the expansion of GOL's competitive advantages".

The carrier has announced a codeshare deal with SkyTeam leader, Delta.

North & South America selected airlines daily share price movements (% change): 06-May-2010

Africa and the Middle East airlines

Along with Jazeera (see below) and Kenya Airways (-1.8%), Royal Jordanian, which earlier this week offered a cautious outlook with expectations of only a "slight" profit as higher fuel prices began to pinch, was slightly down. South Africa's 1time was the only stock to show a positive result on the day.

Selected African and Middle Eastern airlines share price movements (% change): 06-May-2010

Low-cost airlines

Most low-cost airlines fared reasonably well in the soft conditions, with the exceptions noted earlier, of GOL and Vueling.

In the Middle East, Jazeera, which is being confronted by steep competition from full service and low-cost airlines alike, lost 5.3%. Dubai based LCC, flydubai, yesterday announced substantial discounts across its network.

Virgin Blue (+1.0%) showed greatest resilience, after losing ground in recent days after issuing a doubtful outlook.

Selected LCCs daily share price movements (% change): 06-May-2010

Airports

Along with the major Chinese airlines, China's airports provided the biggest share price falls yesterday, with Shanghai down 7.0%, Beijing Capital off 5.4%, Hainan -4.7%, Guangzhou -4.6% Shenzhen -4.6% and Xiamen -4.4%.

Ferrovial too lost 5.4%. The transport conglomerate this week reported an improved first quarter EBITDA of EUR 512.6 million, with Heathrow traffic up 1.6%, despite harsh winter weather and the British Airways strike - although the week's closure due to the Icelandic volcano dust cloud has hurt revenues.

Selected airports daily share price movements (% change): 06-May-2010

Aviation Suppliers

Among the few bright spots in the aviation sector yesterday, India's NIIT Technologies (+3.6%) yesterday reported a 39% improvement in its order book for the year, although its Mar-2010 quarter results were not inspiring. Revenues for the quarter were up 5% to INR2.4 billion and net profit grew 57%.

MTU Aero Engines shares were up 3.3%. Reporting a modest profit for the first quarter, the German aero engine manufacturer last month projected a steady outlook for the year.

But, as industry stocks generally were battered by debt concerns, leasing companies were worst hit, with hundreds of millions of dollars wiped off collective values. Aerocentury (-9.7%), Aircastle (-9.3%), Aercap (-8.6%), Babcock and Brown Air (-7.1%) and BE Aerospace (-4.3%) were the biggest falls in this sector.

Manufacturers were also down, with Boeing losing 4.3%, Rockwell Collins -4.3%, Embraer -3.0%, Rolls Royce -2.0% and Bombardier also off 2.0%.

Selected Aviation suppliers' daily share price movements (% change): 06-May-2010