Wednesday, May 11, 2005 - Judge Clears Way for Record Pension Default by UAL

Powerful news! News to make unions unhappy! Good news for consumers! News that puts pressure on others!

Congress is under the gun. There is huge need for pension reform. The PBGC (Pension Benefit Guaranty Corporation) needs new funding. The bill working its way through committees will require larger payments from healthy pension funds to the PBGC. It will also require companies with under-funded accounts to catch up within 7 years! Should this pass, it will put a "hurtin'" on some of these big companies. Big companies need to adopt 401-K style pensions to give employees ownership that cannot be taken away.

DAL and other airlines and their unions are under renewed pressure. UAL will emerge from bankruptcy with a huge competitive advantage if the ruling stands. UAL will save about 500 million dollars per year!

The airlines just got some good news in regard to the price of oil. The crude oil build was larger than expected; the oil price is down about 90 cents per barrel. The trade deficit moderated this morning and the dollar strengthened; putting additional pressure on the US price of oil. The current chart pattern of oil is lower highs and lower lows. Foreign reserve holdings is forecasting a decline in the demand. The auto industry is working over-time trying to convert to the 42 volt systems that will allow all vehicles to have hybrid features. The gas savings will be huge but will take years to implement. Some folks call the new cars silicon cars because they have so many built-in computer chips.

The airline business has miles to go before the turn is complete. The liquidation or buyout of one or two companies could mark the bottom. If I had to speculate on who will buy whom, I would guess that CAL might buy DAL. Of course, it appears that USAir will emerge from bankruptcy owned largely by several regional carriers. It is not clear that there will be a merger of any of these regional carriers.

My family has purchased shares in several of the stronger legacy carriers including CAL and AMR. We project solid profits in 2007 though 2010 and a strong rebound in the stock prices.