DELTA MOVE TO REDUCE DEBT BY $7BN OVER THREE YEARS AS RYANAIR SHOWS VALUE

Dino D'Amore
By Dino D'Amore February 4, 2011 14:02

DELTA MOVE TO REDUCE DEBT BY $7BN OVER THREE YEARS AS RYANAIR SHOWS VALUE

Delta president Edward Bastian, speaking at a conference in the US yesterday, confirmed that the Atlanta-based airline is set to reduce its debt by $7 billion over a three-year period. Fuel costs remain at the top of the worry list but Delta will battle this through increased fares, capacity and fleet efficiencies. The latter, Bastian will say, can be managed by the acceleration of aircraft retirement, trimming capacity and saving on fuel all at once. It will include cutting the MD and 757 fleets down and also raises questions over the substantial CRJ fleet run though Comair/Skywest. As of December 2011, Delta projects a fleet of 1,318 as: 600 regional aircraft, 179 international and 539 domestic mainline. Delta will need to reduce debt if going to the markets to raise funds for aircraft acquisition. Delta aims to keep cash reserves of $1.8bn at any one time.

Bastian also said the carrier has revised its capacity growth plans, with first-quarter growth now targeted for a range of 3% to 5%, versus an earlier growth goal of 5% to 7% due to fuel increases and expected increases during the year.

Indeed US airline stocks are having a hard time of it with investors selecting the airlines that are going to be in trouble, singling them out one by one and dumping their stock. With fuel increasing fast due to storms and political unrest this process is speeding up. On Wednesday the midweek monotony was broken by a sell-off of Gol Linhas, after it announced investor BlackRock had sold a block of preferred shares in the company. Gol is still down about 3% on the week at $14 a share.

But over in Europe there is a real investment opportunity…Ryanair. Shares are still dampened by the Q3 €10m loss, this on the backdrop of a full year loss of €11m last year and the substantial investment in Aer Lingus going south fast, has created investor fright. But net profit in the year to March is on track toward the top of a €380m to €400m target range with air fares up over 15%. In addition, Ryanair is 90% hedged for the fourth quarter at a price of $750 per tonne, compared with the current spot price of $890 per tonne. Also, according to finance director Howard Millar, Ryanair would consider buying Ireland’s 25% stake in Aer Lingus (on the cheap) if it would be put up for sale by a new government looking to raise money by selling state assets after the forthcoming election. Get in there!

So with all this uncertainty creating winners and losers alike maybe investors should consider that all these mergers with aircraft being leased, moved and remarketed across the board are creating a safe bet – Maybe the safest bet is to invest in an aircraft painting firm!

Dino D'Amore
By Dino D'Amore February 4, 2011 14:02
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