Ups and downs!

Dino D'Amore
By Dino D'Amore October 22, 2014 20:03

Ups and downs!

In trading on Tuesday October 14, 2014 shares of Avianca Holdings (AVH) entered into seriously oversold territory with at one point an RSI reading of 29.5, after trading at $13.42 per share. Why? And should investors look for an entry point? The answer came as the Colombian government announced 33% tax on all Panama Holding Companies from the current 10%– AVH is of course registered in Panama so this is going to hit the airline very hard. AVH has not issued a formal statement on the effects of the new tax level as yet but it will need to shortly – Look out for that.

On top of this AVH has to foot the bill (or pass it onto Boeing) for crew transitioning for the 787. Crews were transitioned from A330 to 787 certification ready for September 2014 delivery but the aircraft will not arrive until January, thus they will pass the 90 day certification rule and will have to be re-classified. This comes as AVH was trying to launch services to Barcelona next month. AVH is now in the market for an A330 on a short-term lease and has approached the Chinese for the same. These problems reflect many of those suffered by NAS and LOT with their 787 delays.

But at least AVH has not got the labour problems that poor Air France-KLM is suffering from. Oil prices may yet come to the rescue of figures for the current period but the loss of over €500m due to strikes over the past month seems to be insurmountable and will lead to the need to think about cutting some services. The airline could heavily cut back services and then grow again after 18 months, in the process employing new staff on far more advantageous contractual terms with which to go out and conduct services on a level with the LCCs whilst complying with EU employment laws. It remains to be seen if Air France management will be both brave and dynamic in trying to find a path forward to success following the setbacks of 2014. As France and the Eurozone as a whole sees more need for austerity in the near future, the chances of strong growth in Air France’s home market to get the books back on an even keel seems unlikely. The cash-rich status of Lufthansa is all that stands between it and the same situation as Air France – the near term outlook causes increasing concern for many.

Dino D'Amore
By Dino D'Amore October 22, 2014 20:03