The Wall Street Journal-20080111-The Morning Brief- How Delta Could Launch New Airline Consolidation- Online edition
Return to: The_Wall_Street_Journal-20080111
The Morning Brief: How Delta Could Launch New Airline Consolidation; Online edition
The Wall Street Journal Online
The Morning Brief, a look at the day's biggest news, is emailed to subscribers by 7 a.m. every business day. Sign up for the e-mail here.
The U.S. airline industry may be on the brink of another big thrust of consolidation, prompted by a combination of high fuel costs, low share prices, and broad economic uncertainty -- as well as carriers' hope for more regulatory indulgence from a Republican administration.
Delta Air Lines Chief Executive Richard Anderson convenes a board meeting today where he'll ask permission to pursue formal merger talks with either Northwest Airlines or United Airlines parent UAL, a person with knowledge of the matter tells the Atlanta Journal-Constitution. People close to the situation tell The Wall Street Journal such a green light would broaden what have already been informal talks that Delta held in December with the two rivals and Continental Airlines. United and Delta are the No. 2 and No. 3 U.S. carriers behind American Airlines in terms of traffic, while Northwest is No. 5. And the Journal notes that any big airline merger "is sure to draw heavy regulatory scrutiny because of the impact on fares and competition."
But at a time when Democrats stand a good chance of retaking the White House next fall, the airlines believe approval by antitrust regulators is more likely under President Bush, the paper says. "Airline executives and investors believe deals need to be forged in the next 30 to 45 days to allow enough time for scrutiny before the new administration takes office a year from now," the Journal adds.
With the industry struggling to pay higher fuel costs that have put off Wall Street, a Delta merger with either rival could set off "a new round of industry matchmaking" that "would help airlines reduce excess capacity, raise fares and boost profit margins battered by oil's rise to nearly $100 a barrel, though it likely would lead to more grumbling from stressed passengers," the Journal says. Such consolidation could help spoil what has been a strong period for airplane producers Boeing and Airbus. The two had a banner 2007, racking up orders for almost 7,000 planes. While Airbus and Boeing "hope to rev up production to meet the surge in orders," the Journal says, "they also must take into account the fact that some buyers will renege or disappear before the planes are made." If any of the big carriers combine, they are likely to purchase fewer planes -- which adds uncertainty to the aerospace giants' plans to increase production capacity.
---
Merrill to Announce Bigger Mortgage Losses
When Merrill Lynch reports its quarterly earnings next week, the brokerage and investment-bank titan is expected to announce losses of $15 billion related to bad bets on mortgage investments -- losses that are almost twice its original estimate and far exceed Wall Street forecasts, people who have been briefed on Merrill's plans tell the New York Times. The scale of the losses is what prompted Merrill to seek new funds from outside investors in the U.S. and overseas. Meanwhile, another financial firm suffering from the mortgage mess, Countrywide Financial, seems to have worked out a rescue. Bank of America this morning announced an agreement to take over Countrywide in an all-stock deal worth $4 billion.
BofA agreed to the deal after months of insisting it wouldn't do so, The Wall Street Journal notes, and the takeover "could build a bulwark against the mortgage-default crisis by protecting one of its biggest casualties from collapse," the Journal says. Mortgage-lender Countrywide has been pummeled by a rising wave of loan defaults and a growing roar of speculation about its solvency. One likely beneficiary of such a deal, the Los Angeles Times notes, is Countrywide founder and CEO Angelo Mozilo. Despite Countrywide's troubles, regulatory filings show Mr. Mozilo arranged a departure package that would let him walk away with $115 million in severance-related pay, continue to enjoy free rides on Countrywide's jet and have the company pick up his country club bills until 2011. Another troubled mortgage lender, Northern Rock of Britain, announced a rare bit of good news today: an agreement to sell a portfolio of mortgages for $4.42 billion to J.P. Morgan.
---
Bernanke: We Hear the Economy's Pain
"In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary," Federal Reserve Chairman Ben Bernanke said in a speech yesterday, adding that the Fed stands "ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks." Mr. Bernanke said that while he and his colleagues remain vigilant about inflation -- and are keenly aware of the need to maintain the "Fed's inflation-fighting credibility" -- persistent worries about the housing market and new concerns about the U.S. employment situation point to higher risks to American consumer spending, the key driver of U.S. economic growth. His remarks suggest Fed policy makers are more likely to cut interest rates at their next meeting, Jan. 29-30, even by as much as half a percentage point.
---
Also of Note . . .
Washington Post: The Pentagon said yesterday that the apparent radio threat to bomb U.S. warships in the Persian Gulf last weekend may not have come from the five Iranian Revolutionary Guard speedboats that approached them -- and may not even have been intended against U.S. targets.
International Herald Tribune: The U.S. and Germany have agreed to recognize Kosovo and get the rest of Europe to follow suit after the province declares independence following the Serbian elections next month, according to senior European Union diplomats close to negotiations over the future of Kosovo.
Straights Times: Pakistani President Pervez Musharraf warned in an interview that any unilateral intervention in his country by coalition forces fighting in Afghanistan would be treated as an invasion. Unless agreed to by Pakistan, any entry by the U.S. or coalition forces into Pakistan's tribal areas would be resisted as a breach of Pakistan's sovereignty, he said, at a time when American Democratic presidential candidates have been calling on U.S. forces to join Pakistan's own counter-insurgency efforts.
Associated Press: The revelation that the U.S. Army threw out the conviction of the only officer court-martialed in the Abu Ghraib scandal renewed outrage from human rights advocates who complained that not enough military and civilian leaders were held accountable for the abuse of Iraqi prisoners.
Nikkei: Japan's parliament passed into law a bill to resume the Maritime Self-Defense Force's refueling mission in the Indian Ocean, prompting the government to begin procedures to restart the antiterrorism operations possibly in mid-February after a three-month hiatus. The U.S. and other countries have repeatedly called on Tokyo to resume the mission, which was suspended in November when a special law authorizing it expired in the face of resistance from the political opposition.
Government Executive: An advisory council to the Homeland Security Department issued recommendations aimed at ensuring homeland security operations and programs are not compromised during the transition to a new presidential administration later this year, noting that terrorist attacks occurred around governmental transitions in Spain in 2004 and in the U.K. last summer.
Financial Times: The U.S. is at risk of losing its top-notch triple- A credit rating within a decade unless it takes radical action to curb soaring health-care and social security spending, credit-rating agency Moody's said. The warning over the future of the triple-A rating -- granted to U.S. government debt since it was first assessed in 1917 -- reflects growing concerns over the country's ability to retain its financial and economic supremacy.
Reuters: China's trade surplus for last month came in at $22.7 billion, below forecasts of $24.5 billion and November's $26.3 billion, while Chinese imports grew faster than exports for the third month in a row.
Telegraph: The biggest nuclear companies in Britain and France are in "advanced talks" to create a consortium to build a new generation of reactors in the UK. British Energy and EdF may be joined by Centrica, which is considering taking an equity stake in the group in what would be a new direction for the owner of British Gas.
Wall Street Journal: American Express, known for its creditworthy customer base, said that cardholder spending is slowing down and delinquencies are rising. As a result, the card company said it would take a $440 million pretax charge against fourth-quarter earnings as it sets aside more money to cover soured loans. Though the problems so far aren't as bad as AmEx has experienced in prior economic downturns, the news suggests a new set of problems could be building for other big financial institutions already beset by mortgage troubles.
Women's Wear Daily: Amid fears of a recession, the U.S. luxury juggernaut is showing signs of slowing as December same-store sales declined 5.4% on average for the department-store sector, and total sales for the channel shed 6.5% year over year.
Variety: The Weinstein production company has followed United Artists by inking a nearly identical interim agreement with the Writers Guild. Harvey Weinstein made no bones about his reasons for signing the deal, stressing his empathy for the striking writers, and said he supports a proposal from George Clooney that a blue-ribbon panel of actors and filmmakers -- including Steven Spielberg, Tom Hanks and other A-listers -- be set up to mediate the dispute.
Science: A new study using cutting-edge molecular techniques finds that HIV relies on 273 human proteins to do its dirty work and thus spotlights intriguing, novel drug targets.
Times of London: Sir Edmund Hillary, the unassuming beekeeper who was catapulted into the history books when he became the first man to climb Mount Everest alongside Sherpa companion Tenzing Norgay in 1953, died last night at the age of 88.
---
Quote of the Day
"They stay loyal to nominees even if they lose. They probably say good things about Mike Dukakis," political scientist Larry Sabato tells The Hill, in saying that John Kerry's endorsement of Barack Obama yesterday could boost the current presidential candidate's standing with some Democratic loyalists. But, the paper notes, it also risks reminding voters of Mr. Kerry's painful 2004 loss and his record of gaffes.
---
Write to Joseph Schuman at [email protected]
---
Some links in this column are to sites that require a subscription or registration.
