Why Airlines Need Competition .
Jet Blue’s Auction-Rate Blues
When Jet Blue announced earnings a little over a month ago, nobody asked a question that should be standard on all calls these days: How much of their short-term investments were in auction-rate securities. The answer, according to the 10-K filed last Friday, was that as of December 31, auction-rate securities accounted for 72% of $834 million in cash and investment securities. At $611 million, they accounted for nearly all investment securities.
Jet Blue is hardly alone with such big auction-rate exposure, as I noted here in a recent story about how cash turns to trash. But for a company as capital intensive as an airline, such a large stake in something as potentially illiquid these days as auction-rate securities is noteworthy. (Though, to be fair, investors didn’t have a reason to ask because Jet Blue hadn’t previously disclosed that its investment securities included auction-rate securities. Makes you wonder how many other companies haven’t, in the past, mentioned the previously-thought-to-be-liquid auction-rates in their SEC filings, but I digress….)
As it turns out, according to the 10-K, by February 11 the airline had been able to pare its auction-rate exposure to $330 million, or 41% of all cash and investment securities, which translates into about 28% of its market value. Most of what is left is in government-backed student loans, which have been considered among the most reliable of all auction-rate securities. However, the company says, “auctions for $144 million of these securities were not successful, resulting in our continuing to hold these securities and the issuers paying interest at the maximum contractual rate.”
The company continues: “Based on current market conditions, it is likely that auctions related to more these securities will be unsuccessful in the near term. Unsuccessful auctions will result in our holding securities beyond their next scheduled auction reset dates and limiting the short-term liquidity of these investments.”
The company goes on to say that it believes the underlying securities are fine and that it believes the market will “higher reset rates on failed auctions provide sufficient incentive for the security issuers to address this lack of liquidity.” Otherwise, it adds, “we may be required to adjust the carrying value of these investments through an impairment charge.”
I called Jet Blue for further comment, but their response was to send me a copy of the 10-K disclosure that prompted by call in the first place. A spokesman said the company would have no further comment.
Here’s the full disclosure:
As of December 31, 2007, $611 million of our short-term investments were invested in auction rate securities, or ARSs. We also had $45 million of restricted cash invested in ARSs. Through February 11, 2008, we had reduced our total investments in ARSs to $330 million, principally by investing in other short-term investments as individual ARS reset periods came due and the securities were once again subject to the auction process. The $330 million we have invested in ARSs at February 18, 2008 is collateralized by portfolios of student loans, substantially all of which is guaranteed by the United States government. Through February 18, 2008, auctions for $144 million of these securities were not successful, resulting in our continuing to hold these securities and the issuers paying interest at the maximum contractual rate. Based on current market conditions, it is likely that auctions related to more these securities will be unsuccessful in the near term. Unsuccessful auctions will result in our holding securities beyond their next scheduled auction reset dates and limiting the short-term liquidity of these investments. While these failures in the auction process have affected our ability to access these funds in the near term, we do not believe that the underlying securities or collateral have been affected. We believe that the higher reset rates on failed auctions provide sufficient incentive for the security issuers to address this lack of liquidity. If the credit rating of the security issuers deteriorates, we may be required to adjust the carrying value of these investments through an impairment charge. Excluding ARSs, at February 18, 2008, we had approximately $810 million in cash and short-term investments. We believe the working capital available to us, including the proceeds from our recent equity financing with Lufthansa will be sufficient to meet our cash requirements for at least the next 12 months. ***
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source: http://blogs.marketwatch.com/greenberg/2008/03/jet-blues-auction-rate-blues/
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NWA, other airlines, hiking ticket prices
Northwest Airlines and other big airlines are hiking ticket prices to offset another spike in fuel costs.
Delta Air Lines led the most recent hike of $10 per roundtrip late last week in certain markets. Others, including Northwest, followed over the weekend, according to FareCompare.com, a Web site that follows air fares.
There are 19,000 city pairs on Northwest's schedule affected by the change, the Web site says. Other airlines that embraced the increase include United and American Airlines. And even the low-cost carriers are said to be getting on board with the increases as JetBlue and AirTran hiked fares on certain flights.
The fare increase marks the sixth so far in 2008 for the nation's airlines. It did little to help ailing airline stocks this morning, which were trading lower as crude oil shot to a new record high.
Leading the retreat: Delta and Northwest, which continue to get kicked as merger prospects are seen as dimming. Delta shares were off 5 percent, to $12.69 while Northwest was down 5.5 percent, to $12.69 per share at noon. ***
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By John Welbes
jwelbes@pioneerpress.com
source: http://www.twincities.com/allheadlines/ci_8438025?nclick_check=1
When Jet Blue announced earnings a little over a month ago, nobody asked a question that should be standard on all calls these days: How much of their short-term investments were in auction-rate securities. The answer, according to the 10-K filed last Friday, was that as of December 31, auction-rate securities accounted for 72% of $834 million in cash and investment securities. At $611 million, they accounted for nearly all investment securities.
Jet Blue is hardly alone with such big auction-rate exposure, as I noted here in a recent story about how cash turns to trash. But for a company as capital intensive as an airline, such a large stake in something as potentially illiquid these days as auction-rate securities is noteworthy. (Though, to be fair, investors didn’t have a reason to ask because Jet Blue hadn’t previously disclosed that its investment securities included auction-rate securities. Makes you wonder how many other companies haven’t, in the past, mentioned the previously-thought-to-be-liquid auction-rates in their SEC filings, but I digress….)
As it turns out, according to the 10-K, by February 11 the airline had been able to pare its auction-rate exposure to $330 million, or 41% of all cash and investment securities, which translates into about 28% of its market value. Most of what is left is in government-backed student loans, which have been considered among the most reliable of all auction-rate securities. However, the company says, “auctions for $144 million of these securities were not successful, resulting in our continuing to hold these securities and the issuers paying interest at the maximum contractual rate.”
The company continues: “Based on current market conditions, it is likely that auctions related to more these securities will be unsuccessful in the near term. Unsuccessful auctions will result in our holding securities beyond their next scheduled auction reset dates and limiting the short-term liquidity of these investments.”
The company goes on to say that it believes the underlying securities are fine and that it believes the market will “higher reset rates on failed auctions provide sufficient incentive for the security issuers to address this lack of liquidity.” Otherwise, it adds, “we may be required to adjust the carrying value of these investments through an impairment charge.”
I called Jet Blue for further comment, but their response was to send me a copy of the 10-K disclosure that prompted by call in the first place. A spokesman said the company would have no further comment.
Here’s the full disclosure:
As of December 31, 2007, $611 million of our short-term investments were invested in auction rate securities, or ARSs. We also had $45 million of restricted cash invested in ARSs. Through February 11, 2008, we had reduced our total investments in ARSs to $330 million, principally by investing in other short-term investments as individual ARS reset periods came due and the securities were once again subject to the auction process. The $330 million we have invested in ARSs at February 18, 2008 is collateralized by portfolios of student loans, substantially all of which is guaranteed by the United States government. Through February 18, 2008, auctions for $144 million of these securities were not successful, resulting in our continuing to hold these securities and the issuers paying interest at the maximum contractual rate. Based on current market conditions, it is likely that auctions related to more these securities will be unsuccessful in the near term. Unsuccessful auctions will result in our holding securities beyond their next scheduled auction reset dates and limiting the short-term liquidity of these investments. While these failures in the auction process have affected our ability to access these funds in the near term, we do not believe that the underlying securities or collateral have been affected. We believe that the higher reset rates on failed auctions provide sufficient incentive for the security issuers to address this lack of liquidity. If the credit rating of the security issuers deteriorates, we may be required to adjust the carrying value of these investments through an impairment charge. Excluding ARSs, at February 18, 2008, we had approximately $810 million in cash and short-term investments. We believe the working capital available to us, including the proceeds from our recent equity financing with Lufthansa will be sufficient to meet our cash requirements for at least the next 12 months. ***
--------------------------------------------------------------------------
source: http://blogs.marketwatch.com/greenberg/2008/03/jet-blues-auction-rate-blues/
================================================
NWA, other airlines, hiking ticket prices
Northwest Airlines and other big airlines are hiking ticket prices to offset another spike in fuel costs.
Delta Air Lines led the most recent hike of $10 per roundtrip late last week in certain markets. Others, including Northwest, followed over the weekend, according to FareCompare.com, a Web site that follows air fares.
There are 19,000 city pairs on Northwest's schedule affected by the change, the Web site says. Other airlines that embraced the increase include United and American Airlines. And even the low-cost carriers are said to be getting on board with the increases as JetBlue and AirTran hiked fares on certain flights.
The fare increase marks the sixth so far in 2008 for the nation's airlines. It did little to help ailing airline stocks this morning, which were trading lower as crude oil shot to a new record high.
Leading the retreat: Delta and Northwest, which continue to get kicked as merger prospects are seen as dimming. Delta shares were off 5 percent, to $12.69 while Northwest was down 5.5 percent, to $12.69 per share at noon. ***
----------------------------------------------------
By John Welbes
jwelbes@pioneerpress.com
source: http://www.twincities.com/allheadlines/ci_8438025?nclick_check=1
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