Global Airlines


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Global Airlines





























Current Stock Infromation

  • As of November 4, 2005

  • Stock Price: $14.19

  • Symbol: AMR

  • Exchange: NYSE

  • 52-week Range: 7.83 – 14.49

  • Avg Vol: 4,643,270

  • Market Cap: 2.374B

  • Shares Outstanding: 164M

  • Div Date: 15 March 2005



1-Year Performance



5-Year Performance



Company Information

  • AMR is the parent company of American Airlines and American Eagle Airlines.

  • American Airlines is the world's largest carrier.

  • AMR serves more than 250 cities in more than 40 countries and territories with approximately 3,900 daily flights

  • The combined network fleet numbers more than 1,000 aircraft.

  • Major Shareholders:



Management Team

  • Gerard J. Arpey – Chairman, President & CEO of AMR and American

  • CEO since 2003, Chief Operating Officer from 02-03, Executive Vice President of Operations from 2000-02, CFO from 95-00, Senior Vice President of Planning 92-95, various management positions since 1982.

  • Daniel P. Garton – Executive Vice President of Marketing

  • Executive Vice President of Customer Service from 2000-02, Senior Vice President of Customer Service from 98-00, various management positions since 1984.

  • James Beer – Senior Vice President of Finance & CFO

  • Vice President of American from 98-03 and various management positions since 1991.

  • Gary F. Kennedy – Senior Vice President & General Council

  • Vice President of Corporate Real Estate from 96-03, attorney and various management positions since 1984.

  • Charles D. MarLett – Corporate Secretary

  • Joined American as an attorney in 1984.



Qualitative Analysis: Recent Developments and AMR Specifics

  • COMPETITION

  • Intense competition domestic and international.

  • Increased competition from low cost carriers.

    • “Indefinite” reduction in pricing power.
    • Weak revenues have resulted in persistent large operating losses in recent years.
  • Competing carriers reorganizing in or out of Chapter 11 may be successful in lowering operating costs through renegotiated labor, supply, and financial contracts.

  • Founding member of the oneworld alliance with British Airways.

    • Aim is to enhance customer service and smooth connections.


LABOR

  • LABOR

  • Reduced workforce by 20,000 since 2001.

  • Reduced operating expenses by 1.8 billion in 2003 through a combination of changes in wages, benefits, and work rules

  • Wages, salaries and benefits currently represent about 36% of operating expenses down from 41% in 2002.

  • Average full-time equivalent number of employees for the year ended Dec 31, 2004 was 92,100.

  • Majority of employees are represented by labor unions and covered by collective bargaining agreements.

    • Current agreements with AMR’s three major unions do not become amendable until 2008.


REGULATIONS

  • REGULATIONS

  • Liability for numerous suspected and confirmed cases of environment contamination (approximately $150 million).

  • Security: imposed minimum $2.5 per enplanement security service fee to pay for enhanced security measures.

    • Proposed increase to $5.50 with no assurance that fees may be passed on to consumers.
  • FREQUENT FLYER PROGRAM

  • American established AAdvantage to develop customer loyalty by offering awards to travelers for continued patronage.

    • Members earn mileage credits for flights on participating airlines or by using services of other program participants, including hotels and car rental companies.
    • American reserves the right to change the program at any time without notice and may end the program with six months notice.
    • Company believes this program is “one of its competitive strengths.”


FUEL

  • FUEL

  • Fuel price increase negatively impacted expenses by $1.1 billion during 2004.

  • Fuel hedging program reduced expense by approximately $99 million in 2004.

  • Liquidity problems are expected to negatively impact hedging abilities in the future.

  • INSURANCE

  • The U.S. government no longer provides commercial war-risk insurance to U.S. based airlines covering losses to employees , passengers, third parties, and aircraft.

    • Liability of $1.9 billion for Terrorist Attacks (September, 2001) and $500 million related to flight 587 (November 2001).
    • One of the Company’s insurance carriers that covers approximately 5 per cent of the Company’s coverage has entered liquidation.


Quantitative Analysis: Financial Statements

  • Operating Statistics

  • Earnings

  • Cash Flow Analysis

  • Balance Sheet

  • Profitability

  • Historical Multiples

  • Intrinsic Value



Operating Statistics



Earnings



2004 Revenue Breakdown



Operating Expenses



2004 Operating Expense Breakdown



Cash Flow Analysis



Balance Sheet Summary



Balance Sheet Summary: Trend Lines



Financial Leverage Examined



Future Debt Obligations



Profitability



Historical Multiples



Intrinsic Value



Management Discussion and Analysis (2004 Annual Report)

  • “It will be very difficult, absent continued restructuring of its operations, for the Company to continue to fund its operations on an ongoing basis or for the Company to become profitable if the overall industry revenue environment does not improve and fuel prices remain at historically high levels for an extended period.”



AMR Summary

  • Historically weak revenues and high operating costs

  • High fuel prices

  • Reduced credit rating (significantly below investment grade)

  • Significant debt and severe liquidity problems





Current Stock Information

  • As of November 4, 2005

  • Price: 306.00 pence

  • Symbol: BAB & BAY (ADR)

  • Exchange: LSE & NYSE

  • Exchange rate: ₤1 = CAD$2.08

  • 52-week range: 215.00 - 321.00 pence

  • Average vol: 13,606,800

  • Share outstanding: 1,082,903,000

  • Market capitalization: ₤3,316,683,180



Company History

  • 1919 – Aircraft Transport & Travel

  • 1924 – Imperial Airways

  • 1939 – British Overseas Airways Corp.

  • 1949 – British European Airways

  • 1974 – British Airways

  • 1987 – Privatization of British Airways



Company Information

  • BA is the leading international airline

  • Main activity: operation of international & domestic scheduled

  • passenger airline services

  • Operating bases: Heathrow & Gatwick

  • Extensive international route networks: 149 destinations in 72

  • countries (as of March 31, 2005)

  • Major institutional shareholders:

    • Barclays Global Investors (UK) – 9.59%
    • Franklin Templeton Investment Management – 5.68%
    • Fidelity Investment Services – 3.91%
  • Subsidiary: BA CitiExpress

  • Franchises: Comair, GB Airways, British Mediterranean, Loganair

  • and Sun-Air of Scandinavia



Management Team

  • Martin Broughton - Chairman

  • Non-executive director since May 2000, Deputy

  • Chairman from November 2003 becoming Chairman

  • in July 2004

  • Willie  Walsh - Chief Executive Designate

  • Executive Board Member from May 2005

  • John Rishton - Chief Financial Officer

  • Executive Board member since September 2001

  • Martin George – Commercial Director

  • He joined British Airways in 1987 and was appointed

  • Commercial Director in August 2004



Alliances & Partnerships



Qualitative Analysis

  • Competition

  • Market dynamics

  • Regulations

  • Firm strategy

  • Risks



Competition

  • Lufthansa

  • Air France-KLM

  • Small domestic & European carriers

  • Delta

  • United

  • Alliances



Market Dynamics

  • 1997 – to launch low-fare, no-frills airline

  • May 2001 – e-ticketing

  • Post 9/11

    • Business Response Scheme
    • Heavy promotions
    • Club World seat / flat bad
    • Cut European air fairs
  • Feb 2002 – implemented the FSAS program

  • Dec 2002 – switched to Airbus

  • Oct 2003 – withdrew Condorde

  • 2008 – new Terminal 5 at Heathrow



Regulations

  • IATA

    • Single European sky
    • Regulation of monopoly suppliers
    • Equal treatment of air and rail
    • Elimination of outdated regulations
  • EU & US

    • Transatlantic air treaty
  • BA & AA

    • Codesharing


Strategy

    • “We will continue to simplify and modernise our business. New technology is key to simplifying processes for our customers.” (Rod Eddington, CEO)
  • Simplification of the business

    • Cost structures
    • Network operation
    • Fleet & network strategy
    • Achieve 10% operating margin


Risks

  • Government regulation

  • Fluctuations in the fuel price

  • Terrorism

  • Insurance market failure

  • Epidemics

  • Political restrictions

  • Employment law

  • Environmental regulation



Quantitative Analysis

  • Income statement analysis

  • Balance sheet analysis

  • Cash flow analysis

  • Operating statistics

  • Performance measures



Income Statement





Revenue Breakdown



Revenue Breakdown



Geographic Revenue



Operating Expenses Summary



2005 Operating Expenses



Earnings Highlights



Balance Sheet



Fixed Assets







Debt & Shareholders’ Funds



Balance Sheet Summary



Cash Flow Statement



Cash Flow Summary (US GAAP)





Operating Statistics



Ratio Analysis



Stock Performance



NYSE: BAB vs. AMR



Recommendation

  • Attractive among the European network

  • airlines

  • Growing premium traffic

  • Fuel prices, terrorism, labour costs

  • No dividend

  • Recommendation

  •  HOLD





Current Stock Information

  • As of November 4, 2005

  • Price: S$11.50

  • Exchange rate: 1S$=0.5876$

  • 52-week range: S$10.70-12.90

  • Market cap: S$ 10.66 billion

  • Share outstanding: 920 million



Background

  • Found in Oct. 1972

    • Separated from Malaysian Airways
  • Spans over 110 cities globally with

  • about 90 aircrafts (Average age 5yrs)

  • Singapore government owned 57% of

  • shares through Temasek holdings



Background Con’t

  • Awards and accolades in 2005

    • Skytrax ranked SIA as one of the only three Five
    • Star Airlines
    • OGA(UK) voted SIA the Best airline based in Asia
    • Business Traveller (USA) also voted SIA Best
    • Airline for International Travel, as well as having the Best First and Economy Classes


Background Con’t

  • Alliance Partners:

    • Singapore Airlines joined the Star Alliance in April 2000
    • Outside of the Star Alliance, cooperation with Virgin Atlantic
    • Airways, and Malaysian Airlines (MAS)


Background Con’t

  • Subsidiaries of SIA

    • Silk Air
    • SIA Engineering Co.
    • SIA Cargo
    • SATS (Singapore Airport Terminal Services Ltd)


Group Finance Review



Group Finance Review



Group Finance Review

          • 2005 2004
          • Net Debt Equity Ratio 0.19 0.20


Group Finance Review



Group Finance Review



Group Finance Review



Operating Performance



Operating Performance



Cost Structure



Cost Structure



Cost Structure



Cost Structure



Cost Structure



Profitability-Conclusion

  • Four engines of profit growth:

  • 1 Capacity (ASK): ↑18.6% Higher than expectation

  • 2 Load factor: ↑ 1.4% Lower than expectation

  • 3 Yield: (Rev/RPK) ↑ 2.3% Higher than expectation

  • 4 Cost: CASK (cost per available seat kilometer )

  • Fuel CASK ↑ 23%

  • Non-Fuel CASK ↓ 11% Better than expectation

  • Three of them higher than expectation to lead earnings growth

  • (expectations are from JP Morgan's Analysis)



Market Information



5-Year Performance



One-Year Performance



Major Shareholders



Market Ratios



Cash Flow Analysis

  • Net cash from operation activities 2,786.6 1,760.5

  • Net cash used in investing activities (1,009.9) (606.8)

  • Net cash used in financing activities (394.7) (413)

  • Total cash inflow 1,382.0 740.7

  • Ending Cash 2,814.0 1,491.4

  • Cash per share 3.06 1.62



Recommendation

  • Long-term  Hold




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