Fedex Bear Case Scenario $FDX, $UPS, $DPSGY, $LFWGF, $KHNGY, $BA

FedEx (NYSE:FDX) is about to release earnings. Ponder this Bear Case Scenario:

FedEx operates one of the largest commercial air freight fleets in the world. Capex to make this work is astronomical. Boeing, Airbus and other manufacturers do not give the product away. To stay efficient and competitive they need to be constantly upgrading the fleet and spare parts. This presents a tightrope scenario between generating cash flow and spending money on aircraft.

Fuel sur-charges do buffer oil shock to some extent. However as all airlines can attest they are often victims of oil economics. Hedging does not cover everything.

FedEx is a global company. Any slowdown in one or more markets makes it very vulnerable. If growth in emerging markets slows they will need to reduce exposures to those markets.

George Gutowski writes from a caveat emptor perspective.

Boeing Crash and Burn $BA

Boeing (NYSE:BA) my my my. Despite recent news reports and market commentary Boeing is doing rather well. Earnings and revenues are up. Deliveries are still strong. Margins are improving. Passenger air travel will increase driving demand for fuel-efficient new aircraft.

Everything is peachy keen good. No worries. Just buy a little bit more. Yes all the metrics everyone is talking about are positive. so lets talk about the 800 lb gorilla sitting in the room that can disrupt everything.

Oil or more precisely jet fuel JP4 if I have the nomenclature correct.

If oil jumps and stays up the cost or air travel will increase. People will cut back on air travel. air lines will cut back on order purchases etc etc etc.

So its nice to follow the Boeing story. The 787 Dreamliner with its carbon body that flexes on take off is very sexy.

But it comes down to the price of oil which is a geo-political risk that even the most astute and sophisticated businessman cannot manage around.

So yes the new fleet is more fuel-efficient. But a terrorist can drive up the price of oil faster than an engineer can wring fuel efficiency out of the technology.

George Gutowski writes from a caveat emptor perspective.

American Airlines strange patriotism $AMR #boeing737 #airbusa320 #unions

departing LAX

Image via Wikipedia

American Airlines (NYSE:AMR) announced it was splitting its fleet between Boeing (NYSE:BA) and Airbus, EADS (EAD). After 911 airlines were bankrupt and needed all sorts of support from the American people. Now when the big order goes in workers in Toulouse France and Hamburg Germany will be enjoying some overtime. Less money in the US economy thanks a lot.

But wait a minute lets take a closer look. AMR trades around $5 @ share. The fundamentals are not compelling. They have a huge union legacy issue; especially with the heavily unionized repair facility that American maintains. The repair facility is exclusively Boeing oriented because that’s all American has in the air. Where will the Airbus be maintained? Which union picks up the work? Opportunity to cut or eliminate legacy costs?

Then look at the battle of the options. Both contracts have huge options to buy more aircraft. Each manufacturer wants the options exercised thereby adding to the order backlog. Now you have some old-fashioned competition. Boeing and Airbus will compete heavily against each other with American being the beneficiary.Of course if American does not survive,  the manufacturing hit is partly exported to Europe and the Boeing guys do not hurt as much.

Aircraft manufacturing is also a huge political football. Boeing will be watching sneaky European subsidies affecting the American Airlines deal. Boeing is in a political fight with the Obama Administration about their right to open new manufacturing facilities in South Carolina. Sure they will manufacture 787s there but when it’s political it becomes quite the mess.

So fly the friendly skies and keep your seat belt buckled at all times.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours. When I fly I am more motivated by schedule and on time performance. I usually do not care much about which airliner I’m in. Attentive stewardesses are always appreciated.