Midwest Airline Pilots Mad As Hell, Not Going To Take It Anymore

Forensic Accountant Tracy Coenan has a brief tirade about the futility of the rally held by the union for Midwest Airlines' pilots.

Midwest Airlines pilots hold rally… Why?

In addition to all of this, Midwest wants the pilots to take wage cuts of between 45% and 65%. I don’t blame the pilots and their union for fighting this wage cut and the layoffs, but what’s the alternative? If Midwest can’t create a financial situation in which they at least break even, they go out of business. I realize that pilots are being expected to go from salaries in the $100,000 range, down to $30,000 to $40,000. Who wants to do that? No one. But what’s the alternative from the standpoint of the company?
So what is going to be achieved by rallying and making negative comments about the company? Nothing, as I see it. I still respect the pilots’ rights to do it. I just don’t think that it’s going to accomplish anything. The business model of U.S. airlines is no longer viable.

Let me just say right off the bat that I have little respect for airlines. In my opinion, the only stock position you should have in an airline is short. And we've all heard the old saw about how the best way to become a millionaire is to become a billionaire and open an airline. Ba-DUM-bum!

Let's face it, you'd have to look long and hard to find an industry that whines more, delivers poorer shareholder value, and suckles on government-doled corporate welfare harder than the airlines. As I've said before, if tomorrow some genius invented a Star-Trek styled teleport device for moving people and cargo instantaneously and cheaply through space, the very next day, airline lobbyists would be hitting up the government for big fat subsidies and tax breaks "in order to remain competitive."

With that out of the way, I would say to Ms. Coenan that having the pilots express their displeasure is reason enough in itself. Negativity and criticism, like short selling, is a critical tool in giving feedback to public companies. Getting airline management to deliver value to shareholders is akin to pushing a rope, but why should they collect paychecks for achieving nothing without being publicly excoriated for their errors?

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Air Canada emerged from creditor protection last week, stock already flying south

Since we were just talking about airlines, bankruptcy, and investment, here's an article about Air Canada by Jeff Sanford in Canadian Business Magazine.

After its flight into bankruptcy in 2004, Air Canada (TSX: AC.A) rolled out of the hangar in mid-November to relaunch on the TSX. But Day 1 of the IPO wasn't exactly buoyant. In the first two hours of trading, the stock plunged about 6%, ending the day just above $19.

If you go to tsx.com and look at AC.A's performance since their IPO last week, you will see a slow, stately, almost graceful loss of value. Not a crash, per se, more like steadily losing altitude.

Of course, when you reach 0 feet, you either land, or you crash.

What's ridiculous is that Air Canada executives are trumpeting EBITDAR as a metric of how great they're doing, which is their pre-net income that excluding taxes, depreciation and the rent on its airplanes.

So should executives get a cookie for pre-net earnings, before they've paid all the bills? Not everyone thinks that this is such a great idea:

Mark Rosen, a forensic accountant with Rosen & Associates Ltd., was highly critical of Air Canada's decision to frontline EBITDAR. "You can't just ignore all of the cash expenses below the EBITDAR line. It's unfortunate EBITDAR carries such prominence in the prospectus," he says.

Any institutional investor who bought into Air Canada last Friday has either completely forgotten the lessons of history when it comes to airline finance, or they are looking for a quick and easy loss just in time for the end of the 2006 tax year.

Don't be too surprised to see people buying Air Canada short, which is probably the only sensible thing to do.*


*The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? This blog is intended solely for the entertainment of the reader, and the author.

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US Air and Delta getting into bed together

Bloomberg: US Airways Proposes $8 Billion Delta Air Takeover

Nov. 15 (Bloomberg) -- US Airways Group Inc. made an $8 billion offer for bankrupt Delta Air Lines Inc. in a transaction that would create the world's largest airline. US Airways disclosed its bid today after Delta Chief Executive Officer Gerald Grinstein last month declined to enter into talks. Delta's creditors would get $4 billion in cash and $4 billion in stock in US Airways, formed 14 months ago by exiting bankruptcy in a merger with America West Holdings Corp. A merger would vault the combined company past AMR Corp.'s American Airlines as the world's biggest carrier, uniting the third-largest U.S. carrier, Delta, with seventh-biggest US Airways. The tie-up would take advantage of airlines' recovery from more than $40 billion in losses from 2001 through 2005. ``This would be a very sensible move, but fiendishly complicated,'' said Richard Aboulafia, vice president of Teal Group, a Fairfax, Virginia-based consultant. ``Complicated by issues of seniority, culture, fleet, route networks -- and that's just scratching the surface.''

Since I'm pressed for time, I'm just going to restate what I commented on Dealbreaker.com earlier:

So the plan is for USAir and Delta to merge so that two years from now they can plunge into bankruptcy together?

The airline business, in general, is a big black hole for public and private capital. Aside from farmers, nobody beats airline executives for pissing and moaning about a thousand factors beyond their control that inhibit their ability to make money. Inevitably, they wallow up to the government trough with their hands out.

I guarantee that if today some whiz kids invented safe, reliable teleporters just like on "Star Trek" and revolutionized the world with inexpensive, instananeous transit of passengers and cargo, the very next day the airlines would be lobbying the U.S. Congress for tax breaks, and a big fat bailout package to stay afloat in the face of this new threat to their status quo.

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