UCAL stock won’t fly
.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:
Do you think that the combination of Continental and United airlines will be a good investment? It seems that this merger combines the best of both airlines and that together, management will be able to reduce costs, improve operating efficiencies and finally begin a long-term trend toward profitability. My broker has suggested that when the merger is approved, I should allocate about 4 percent of my portfolio, or about $13,000, in the new company. He makes a good case for this investment (I’ve enclosed his statistical analysis), and it certainly appears impressive.
E.W., Rochester, Minn.
Dear E.W.:
It seems that your broker uses statistics for the same reason a drunk uses a lamppost. First of all, I don’t know if Congress will approve the merger, because it would make UCAL (the proposed new name) the largest carrier in the world and limit competition. Well, perhaps that’s just what the airline industry needs, because there are still too many planes flown by too many pilots with too many low-paying customers who are squeezed into too many too-small seats.
I never make an investment unless I think I can be comfortable owning that investment for at least 10 years. Right or wrong, that’s my investment style, and it has worked well for me. The merger, if approved, may give UCAL a short burst in value; however, UCAL still will be managed by industry executives who think a profit is an old man with a long white beard and a staff. In my opinion, most airline executives couldn’t manage a two-car funeral procession.
On paper, the combination of Continental (CAL) and United (UAL) makes sense, and so did many other airline mergers. Still, I can’t name one big airline merger that can claim good results. Pan Am, TWA, Braniff and Eastern — once the biggest and best — have folded their wings because they couldn’t fight the industry’s three biggest enemies: fixed costs, over-expansion and strong labor unions. So over the past 10 years, the airline industry has collectively racked up $62 billion in losses and slashed more than 150,000 jobs.
In fact, the only common skill among airline CEOs is their clever use of Chapter 11 bankruptcy to reshuffle operations and sucker shareholders. According to a Goldman Sachs analyst to whom I spoke, 37 airlines (including United) have filed for bankruptcy since 2000.
Let’s face it, with the exception of Southwest, JetBlue and a few other smaller carriers, the guys who run the airlines ought to be put back on the turnip truck. They failed miserably (can you imagine paying $45 to stow a bag in an overhead bin?) only because their ignorance exceeds their abilities. Glenn Tilton, UAL’s big boss, has managed this carrier for 10 years; in nine of them, it lost money. Jeez, when this guy was born, his mother should have kept the stork and thrown the baby away.
I can’t imagine how airlines continue to attract capital, why banks are eager to lend them money and why so many investors continue to buy their bonds and common stock. It must be a genetic abnormality. The airline industry is not a venue for long-term investments, because share values do not reflect reality. For instance: Why should UAL and CAL, neither of which has made a profit since the Civil War, trade in the low $20s, while Southwest — which hasn’t lost a pfennig in 25 years — trades at $13 a share? I think your broker ought to join AA.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com. © 2010 Creators.Com
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