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

departing LAX

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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.

$AMR Reverse Oil Play Half Pregnant

AMR Corporation

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AMR (NYSE:AMR) the parent company for American Airlines announced results and what can you say. An airline that cannot cover its cost of capital and is constantly struggling with the price of jet fuel. Management discusses its hedge program and claims that approximately half the anticipated consumption for Q2 2011 is hedged. Can you be half pregnant?

The hedging program is similar to chasing a horse once it bolted from the barn. AMR is responding to the market price of oil and plays catch up. If they had a correct approach to cost management they would identify where they need oil costs to be to generate acceptable profits and manage to that level.

The big question becomes if AMR could manage oil costs would they still be viable. Management is curiously silent on this issue.

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.