Post by srinze on Apr 19, 2006 9:49:21 GMT -5
These two stocks are up nicely for me and they will be going much higher.
GOL & TAM. They are both Brazilian airline stocks that are benefiting from the major national carrier going out of business.
Here is a news article about it and share price.
DJ Varig Troubles Spell Upside For Shares Of Rival Carriers
--------------------------------------------------------------------------------
Dow Jones Real-Time News for InvestorsSM
07:32 a.m. 04/19/2006
(This article was originally published Tuesday)
By Claudia Assis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--As investors and other market watchers grow less optimistic about a happy end for once-dominant Brazilian airline Viacao Aerea Rio Grandense (VAG4.BR), or Varig, heads are naturally turning to the ones that stand to gain the most from a grounded Varig - Tam SA (TAM) and Gol Linhas Aereas Inteligentes (GOL).
Varig has bled heavily for nearly a year - the company filed for bankruptcy in June - but analysts still see upside for stocks of Tam, Brazil's largest carrier, and Gol, the country's first and most successful budget airline.
Tam local shares have gained 23% in dollar terms year to date. Local shares of Gol, a market favorite that has benefitted from Latin America's demographic shifts and favorable air travel trends, have risen 15%, also in dollar terms for the same period.
By comparison, the Ibovespa, the Brazil's stock exchange benchmark index, has risen 24% in dollar terms.
Bear Stearns in a Monday report noted that a 25% contraction in Varig's operations would bring the fair value of Tam's American Depositary Receipt to $33 from around $24. For Gol, the same contraction would mean an increase to $34 from $28 per ADR.
A complete Varig shutdown would increase Tam's ADRs to $68 and Gol's to $54, Bear Stearns added. On the New York Stock Exchange Tuesday afternoon, Tam was up 7.1% to $25.10, while Gol was gaining 1% at $33.18.
If Varig is permanently grounded, it is safe to say that Tam and Gol, along with smaller Brazilian airlines, will file multiple requests for Varig's domestic routes through the Brazilian civil aviation regulator, or Anac after its acronym in Portuguese. Varig enjoys a share of the domestic market of approximately 18%.
It is not clear how Anac - itself a new agency, created in March to replace a department linked to the Brazilian air force - would go about distributing the domestic routes, but most market participants expect the pie would be sliced according to each company's market share, said analyst Carlos Albano, with Brazil's third-largest private bank, Unibanco (UBB).
Tam, Brazil's largest domestic airline, would have more seats to offer, and would be marginally better positioned than Gol to take advantage of a Varig demise, Albano said.
"But both are able to absorb domestic market share," he said.
The scenario would change, however, if the coveted international routes come into play. Of the Brazilian airlines, Varig has about 70% market share for international flights, said Deutsche Bank analyst Dan McGoey.
"It's a different story," McGoey said. "There's no clear solution as to how a cessation of services of Varig could be filled."
Tam, which already has long-haul flights, would be able to claim significantly more flights than Gol, which only flies internationally to neighboring South American countries using smaller planes, Unibanco's Albano said.
Acquiring larger planes and incurring all the expenses associated with them, such as pilot training and maintenance costs, wouldn't fit in Gol's business model, Unibanco's Albano said.
Gol currently operates with a fleet of Boeing's (BA) 737, which carry fewer than 200 passengers, and would have to invest in long-haul planes with capacity above 200 passengers to effectively compete with Tam for the Varig international bounty, Albano said.
It is true that flying longer international routes does not fit Gol's current market strategy, but that doesn't mean it couldn't change, Deutsche's McGoey said.
"They definitely don't have the spare capacity to fill that void that could be created by Varig (in international flights)," he said. "But Gol could rethink their role in Brazilian aviation."
McGoey considered "premature" any talks of a complete demise of Varig. But Tam and Gol would benefit from even a weaker Varig, since it would mean that the fare competition in Brazil would not be as intense as it has been, he said.
Unibanco's Albano said the most likely scenario for the international routes would be Gol increasing its flights to Argentina, and Tam increasing its flights to New York, Miami and Paris, and, if a codeshare agreement with German airline Deutsche Lufthansa AG (LHA.XE) comes through, secure a route to Frankfurt, Albano said.
On Tuesday, Tam announced it was granted Anac's permission to operate seven flights to London, adding a second European destination.
Other places to which Varig flies - including Peru, Spain, Italy, Portugal, China and South Africa - would be up for grabs, he said.
Albano estimated that Tam and Gol would have to add six new planes to their fleets to fill Varig's boots. That means that Gol would end 2006 with 64 planes, and Tam with 94 planes, he said.
In case Varig is ultimately grounded, the Brazilian government is preparing a contingency plan to avoid backups and protect passengers who already bought Varig tickets. Staff and leasing contracts would also be allocated to other Brazilian airlines.
According to local news reports this week, since Brazil fears permanently losing international slots currently held by Varig to foreign airlines, it wants to only temporarily transfer slots to foreign air carriers, while a trimmer Varig could exclusively cater to international travel. That proposal is in line with what Varig employees have proposed.
Varig's quest for a lifeline became more complicated last week after President Luiz Inacio Lula da Silva said the government would not bail it out. Finance Minister Guido Mantega reiterated this week the government won't give Varig any money to climb out of its debts.
Varig's obligations amount to around 7 billion Brazilian reals ($3.3 billion). Main creditors include the Brazilian airport authority, or Infraero, state-run fuel distributor BR Distribuidora, airplane leasing companies and the workers' pension fund.
The airline recently had to ground planes and cancel flights because it couldn't meet operating payments, and it risks having all its domestic flights stopped for nonpayment of airport fees in Brazil.
The Rio de Janeiro bankruptcy judge in charge of Varig's case said Tuesday Varig is still viable. "In fact, it has great potential," Judge Luiz Roberto Ayoub said.
Ayoub called continued talks between Varig and possible buyers "encouraging."
VarigLog, the airline's former cargo wing, last week announced it had increased an earlier offer to buy Varig. VarigLog is owned by a group of Brazilian businessmen and U.S. investment fund Matlin Patterson.
Regulator Anac is studying the $400 million proposal, which was endorsed by Varig's administration but still has to be approved by bankruptcy judges and creditors. A potential sticking point for the deal is the involvement of Matlin Patterson - foreign firms are not allowed to own more than 20% of a domestic airline.
"The deal may well be too little, too late given the near-term liquidity issues at Varig," Bear Stearns said.
Varig consumes $2 million a day in fuel and faces a BRL42 million ($19.8 million) payment to Infraero this week and, in addition, protection from foreign lessors of long-haul aircraft is set to end April 28, the Wall Street firm added.
-By Claudia Assis, Dow Jones Newswires; 201-938-4385; claudia.assis@dowjones.com
(Bernd Radowitz and Alastair Stewart in Brazil contributed to this report.)
Dow Jones Newswires
04-19-06 0732ET
Copyright (c) 2006 Dow Jones & Company, Inc.
GOL & TAM. They are both Brazilian airline stocks that are benefiting from the major national carrier going out of business.
Here is a news article about it and share price.
DJ Varig Troubles Spell Upside For Shares Of Rival Carriers
--------------------------------------------------------------------------------
Dow Jones Real-Time News for InvestorsSM
07:32 a.m. 04/19/2006
(This article was originally published Tuesday)
By Claudia Assis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--As investors and other market watchers grow less optimistic about a happy end for once-dominant Brazilian airline Viacao Aerea Rio Grandense (VAG4.BR), or Varig, heads are naturally turning to the ones that stand to gain the most from a grounded Varig - Tam SA (TAM) and Gol Linhas Aereas Inteligentes (GOL).
Varig has bled heavily for nearly a year - the company filed for bankruptcy in June - but analysts still see upside for stocks of Tam, Brazil's largest carrier, and Gol, the country's first and most successful budget airline.
Tam local shares have gained 23% in dollar terms year to date. Local shares of Gol, a market favorite that has benefitted from Latin America's demographic shifts and favorable air travel trends, have risen 15%, also in dollar terms for the same period.
By comparison, the Ibovespa, the Brazil's stock exchange benchmark index, has risen 24% in dollar terms.
Bear Stearns in a Monday report noted that a 25% contraction in Varig's operations would bring the fair value of Tam's American Depositary Receipt to $33 from around $24. For Gol, the same contraction would mean an increase to $34 from $28 per ADR.
A complete Varig shutdown would increase Tam's ADRs to $68 and Gol's to $54, Bear Stearns added. On the New York Stock Exchange Tuesday afternoon, Tam was up 7.1% to $25.10, while Gol was gaining 1% at $33.18.
If Varig is permanently grounded, it is safe to say that Tam and Gol, along with smaller Brazilian airlines, will file multiple requests for Varig's domestic routes through the Brazilian civil aviation regulator, or Anac after its acronym in Portuguese. Varig enjoys a share of the domestic market of approximately 18%.
It is not clear how Anac - itself a new agency, created in March to replace a department linked to the Brazilian air force - would go about distributing the domestic routes, but most market participants expect the pie would be sliced according to each company's market share, said analyst Carlos Albano, with Brazil's third-largest private bank, Unibanco (UBB).
Tam, Brazil's largest domestic airline, would have more seats to offer, and would be marginally better positioned than Gol to take advantage of a Varig demise, Albano said.
"But both are able to absorb domestic market share," he said.
The scenario would change, however, if the coveted international routes come into play. Of the Brazilian airlines, Varig has about 70% market share for international flights, said Deutsche Bank analyst Dan McGoey.
"It's a different story," McGoey said. "There's no clear solution as to how a cessation of services of Varig could be filled."
Tam, which already has long-haul flights, would be able to claim significantly more flights than Gol, which only flies internationally to neighboring South American countries using smaller planes, Unibanco's Albano said.
Acquiring larger planes and incurring all the expenses associated with them, such as pilot training and maintenance costs, wouldn't fit in Gol's business model, Unibanco's Albano said.
Gol currently operates with a fleet of Boeing's (BA) 737, which carry fewer than 200 passengers, and would have to invest in long-haul planes with capacity above 200 passengers to effectively compete with Tam for the Varig international bounty, Albano said.
It is true that flying longer international routes does not fit Gol's current market strategy, but that doesn't mean it couldn't change, Deutsche's McGoey said.
"They definitely don't have the spare capacity to fill that void that could be created by Varig (in international flights)," he said. "But Gol could rethink their role in Brazilian aviation."
McGoey considered "premature" any talks of a complete demise of Varig. But Tam and Gol would benefit from even a weaker Varig, since it would mean that the fare competition in Brazil would not be as intense as it has been, he said.
Unibanco's Albano said the most likely scenario for the international routes would be Gol increasing its flights to Argentina, and Tam increasing its flights to New York, Miami and Paris, and, if a codeshare agreement with German airline Deutsche Lufthansa AG (LHA.XE) comes through, secure a route to Frankfurt, Albano said.
On Tuesday, Tam announced it was granted Anac's permission to operate seven flights to London, adding a second European destination.
Other places to which Varig flies - including Peru, Spain, Italy, Portugal, China and South Africa - would be up for grabs, he said.
Albano estimated that Tam and Gol would have to add six new planes to their fleets to fill Varig's boots. That means that Gol would end 2006 with 64 planes, and Tam with 94 planes, he said.
In case Varig is ultimately grounded, the Brazilian government is preparing a contingency plan to avoid backups and protect passengers who already bought Varig tickets. Staff and leasing contracts would also be allocated to other Brazilian airlines.
According to local news reports this week, since Brazil fears permanently losing international slots currently held by Varig to foreign airlines, it wants to only temporarily transfer slots to foreign air carriers, while a trimmer Varig could exclusively cater to international travel. That proposal is in line with what Varig employees have proposed.
Varig's quest for a lifeline became more complicated last week after President Luiz Inacio Lula da Silva said the government would not bail it out. Finance Minister Guido Mantega reiterated this week the government won't give Varig any money to climb out of its debts.
Varig's obligations amount to around 7 billion Brazilian reals ($3.3 billion). Main creditors include the Brazilian airport authority, or Infraero, state-run fuel distributor BR Distribuidora, airplane leasing companies and the workers' pension fund.
The airline recently had to ground planes and cancel flights because it couldn't meet operating payments, and it risks having all its domestic flights stopped for nonpayment of airport fees in Brazil.
The Rio de Janeiro bankruptcy judge in charge of Varig's case said Tuesday Varig is still viable. "In fact, it has great potential," Judge Luiz Roberto Ayoub said.
Ayoub called continued talks between Varig and possible buyers "encouraging."
VarigLog, the airline's former cargo wing, last week announced it had increased an earlier offer to buy Varig. VarigLog is owned by a group of Brazilian businessmen and U.S. investment fund Matlin Patterson.
Regulator Anac is studying the $400 million proposal, which was endorsed by Varig's administration but still has to be approved by bankruptcy judges and creditors. A potential sticking point for the deal is the involvement of Matlin Patterson - foreign firms are not allowed to own more than 20% of a domestic airline.
"The deal may well be too little, too late given the near-term liquidity issues at Varig," Bear Stearns said.
Varig consumes $2 million a day in fuel and faces a BRL42 million ($19.8 million) payment to Infraero this week and, in addition, protection from foreign lessors of long-haul aircraft is set to end April 28, the Wall Street firm added.
-By Claudia Assis, Dow Jones Newswires; 201-938-4385; claudia.assis@dowjones.com
(Bernd Radowitz and Alastair Stewart in Brazil contributed to this report.)
Dow Jones Newswires
04-19-06 0732ET
Copyright (c) 2006 Dow Jones & Company, Inc.
