Tue, Jul 15, 2008
Plans To Post Net Gain Of $22M, Thanks To Stock Selloff
More discouraging news to report from a US carrier, as
Continental Airlines announced recently it plans to post a pretax
charge of $58 million for the second quarter of 2008, due largely
to planned capacity reductions.
Continental will take the hit due to grounding 67 older Boeing
737-300 and -500 airliners, as part of its plans to slash capacity
and eliminate unprofitable routes.
The Wall Street Journal reports Continental expects an overall
after-tax net gain of $22 million, however, related to the
airline's sale of stock in Copa Airlines, which flies to the
Caribbean. Continental recorded $78 million from that sale, as well
as another $31 million in special tax credits and write-offs.
The airline also plans to recognize $33 million in gains tied to
fuel hedging. Besides Southwest Airlines -- the "poster boy," as it
were, for hedging fuel at lower-than-market prices -- Continental
has one of the most aggressive hedging plans among US carriers,
with some 55 percent of its fuel supply hedged through the end of
the year. That falls to 11 percent of its projected requirements
for the first quarter of 2009, though... a significant hit.
In addition to offseting losses from the pre-tax charge, those
gains must also cover a $29 million loss Continental incurred to
write-down the value of auction-rate securities tied to student
loans. The WSJ notes such securities haven't been liquid since such
auctions started failing earlier this year, in-line with the
general slump in the nation's economy.
Continental says to expect additional charges in the
third-quarter and beyond, most of them tied to continuing capacity
cuts. The airline will formally report its Q2 2008 results
Thursday.
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