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.

FMI: www.continental.com