The always perceptive Professor Ribstein over at Ideablog asks this question: Given the volatility or oil prices and the adverse impact of high prices on the business of running an airline, why don’t airlines hedge their fuel costs?
The answer: Airlines generally are not, and never have been, particularly well-managed.
After a particularly unfulfilling experience in investing in airline stocks several years ago, Warren Buffett studied the industry and concluded, if one tabulates all of the airline industry’s finances since the day the Wright Brothers in 1903, one will discover that, cumulatively, there has not been a single penny of profit. Mr. Buffett has also suggested that, in hindsight, shooting down the Wright Brothers on that beach would have been a reasonable financial, if not moral, move.
However, one airline — Dallas-based Southwest Airlines — is and always has been well-managed. And guess who has been hedging its fuel purchases? Read about it here.
Update to this post here.

This Chronicle article reports on the announcement of the merger of two Houston area independent banks — Southwest Bank of Texas and Klein Bank. Southwest will be the acquiring entity under the $165 million deal. The merged company will become the second-largest independent bank in Texas and the fourth-largest bank in the Houston area, behind J.P. Morgan Chase, Bank of America and Wells Fargo. The combined companies will have $6.6 billion in total assets, $4.2 billion in loans, $5.3 billion in deposits and a loan limit of $77 million.

This NY Times article reports on Enron Corp.’s announcement today that, subject to Bankruptcy Court approval, it has agreed to sell for $1.8 billion its most valuable remaining pipeline assets to a company run by colorful Houston billionaire Oscar Wyatt, Jr.
Enron’s pipeline and power assets have never been part of the company’s troubled businesses that led it into bankruptcy in late 2001. Enron will sell CrossCountry Energy Corp. — which owns outright or has stakes in three North American natural-gas pipelines — to Wyatt’s company, NuCoastal LLC. As a part of the deal, NuCoastal would also assume $430 million in debt from the 2,600-mile Transwestern Pipeline in the deal.
Mr. Wyatt, who is 79 years old, has long been one of Houston’s most outspoken businessmen. He founded Coastal Corp. and turned it into a natural gas giant before retiring as its chairman in 1997. El Paso Corp. bought Coastal in 2001 for $22.6 billion, and Mr. Wyatt’s public (and caustic) displeasure with El Paso’s management generated an unsuccessful proxy battle to oust El Paso’s board last year. Another example of Mr. Wyatt’s outspoken nature was his public opposition to Operation Desert Storm in the first Iraq War in 1991, which was led by fellow Houstonian President George H.W. Bush.
Mr. Wyatt’s company may still be outbid for CrossCountry Energy because bankruptcy courts generally award the assets to the highest bidder until the deal is approved. If that occurs, Mr. Wyatt’s company will likely receive a generous “stalking horse” fee, which is usually a percentage of the ultimate purchase price.

This Scott McCartney Wall Street Journal ($) article reports that business travelers will have a new alternative to flying commercial airlines or buying their own jet as early as next year — an “air taxi.”

Using a new generation of small jets that are currently in flight testing, several entrepreneurs are trying to launch “air taxi” services. The goal is to let corporate travelers bypass crowded airports and fly into smaller, local airports, at half of the current cost of chartering a jet.

An outfit called IFly Air Taxi Inc. is floating the concept, and the owners of IFly are an eclectic mix of airline types — Donald C. Burr, the founder of People Express Airlines back in the 1980s, his son, Cameron, and Mr. Burr’s old rival, Robert L. Crandall, the former CEO of American Airlines that was instrumental in running Mr. Burr’s People Express out of business.
One of the reasons that the air taxi concept is drawing interest is the new jet technology — “micro jets” — that will be used:

One reason for optimism that now is the right time for air taxis: The arrival of a new generation of four-passenger “micro jets” that can operate more cheaply than conventional jets. These aircraft typically are much lighter than conventional private jets, and are powered by a new generation of small, fuel-efficient engines. None of the planes are in service yet. Manufacturers are accepting advance orders, which so far are being placed by a mixture of private individuals and hopeful air-taxi operators.

iFly is expected to announce an order for Adam Aircraft jets soon. The Adam A700, which at $2 million is half of the price of the cheapest Cessna Citation jet right now, began flight tests in July 2003.

And how does an air taxi trip stack up to the current conventional modes of business air travel?:

The new planes have the potential to revolutionize transportation. Currently, chartering private jets is extremely expensive, costing $7,000 or more for a 500-mile hop, round-trip. Fractional ownership (where you buy a “share” of an aircraft that entitles you to use it periodically) is no bargain either. Corporate-owned jets, while sometimes economical for shuttling groups of executives, are often viewed as overly expensive perks.
Air-taxi service would be different, in theory at least. Mr. Burr says he can provide rides for $3 to $4 a mile, on average — which works out to be a bit more expensive than most first-class tickets. A trip to Cleveland from Teterboro, N.J., for example, might cost $1,000 to $1,400 on average. By comparison, an unrestricted first class ticket on Continental Airlines from Newark, N.J., to Cleveland costs $1,338.

Of course, there are still a host of unanswered questions about the air taxi concept, such as how best to manage a fleet of such small jets to ensure maximum usage. However, Mr. McCartney sums up what the concept does make clear, which is really the beauty of American capitalism:

What seems clear is that transportation in the future will take many forms, and that our choices in the future may well be better than the ones we have today.

This NY Times article reports on the Justice Department’s aggressive use of obstruction of justice laws in its investigation of accounting irregulaties at the giant software company, Computer Associates.
John F. Savarese, a former federal prosecutor who also represented Martha Stewart before her trial this year, led a team from Wachtell, Lipton, Rosen & Katz, the prominent New York law firm that the company hired to investigate the charges in an internal probe. Savarese and Wachtell turned over information regarding the probe to the Justice Department. On April 9, three former executives of Computer Associates pleaded guilty to obstruction of justice charges that were not tied to statements told to federal investigators, but to statements made to Wachtell during the company’s internal investigation.
The executives were never accused of lying directly to federal investigators or a grand jury. Their guilty pleas were based on the theory that, in lying to Wachtell, they had in effect misled federal officials because Wachtell passed their lies on to the Justice Department.
As the story relates, the Justice Department’s use of the company’s law firm represents a serious extension of Justice’s use of obstruction of justice laws. Usually, obstruction charges cover behavior such as destroying documents, pressuring witnesses not to testify, or lying to federal officials. Inasmuch as an employee can be fired for asserting the privilege against self-incrimination in an internal company probe, this new Justice Department policy may actually hinder such internal probes. Lower level company employees will now be less willing to discuss matters with the company’s investigators, which will make it more difficult to implicate higher level company executives in the alleged wrongdoing.
This is yet another example of the unhealthy criminalization of business that is occurring under the Bush Administration’s Justice Department. And the Republican Party is supposed to be business-friendly?

This Chronicle article reports on the resignation of SBC Communications Inc. President William Daley.
San Antonio-based SBC appointed 51-year-old Forrest Miller, a long-time telecom industry veteran, to succeed Mr. Daley as head of the company’s public affairs and corporate planning functions. However, SBC announced that it is not planning to appoint a new president.
A former Commerce Secretary under President Clinton, chairman of Al Gore’s 2000 presidential campaign, and the son of the late Chicago Mayor Richard J. Daley, Mr. Daley, 55, had been hired in 2001 to advance SBC’s regulatory agenda and was part of a campaign to improve the company’s strained relations with Midwest regulators.
Mr. Daley’s resignation comes as SBC and other local phone giants are in the middle of a volatile period of political activity over the future of access to local phone systems. SBC officials have been trying to free themselves from federal regulations that force them to lease access to their networks to rivals such as AT&T Corp. and MCI Inc. at artificially low rates. Competitors of SBC and other regional telecoms say the federal rules are fair and provide the only method of ensuring competition in local phone markets.
SBC and the other Bells suffered a serious regulatory defeat late last year when the Federal Communications Commission decided to leave wholesale leasing regulations essentially unchanged. Mr. Daley had led SBC’s regulatory lobbying effort in regard to that FCC matter.

One of the more interesting Texas billionaires is Ft. Worth’s Richard Rainwater. He cut his teeth in the big-time financial world by overseeing the tremendous increase in value of the Bass Brothers’ from 1970 through the mid-1980’s, including what turned out to be a very lucrative bet on the Disney Co. during that period. Rainwater then struck out on his own investing heavily in energy, real estate investment trusts, and health care and, as he put it several years ago, “I’m just a retired guy who made a couple billion by being in the right place at the right time.”
Maybe so, but Rainwater’s contrarian investment strategy has always been interesting to follow. Today, this Wall Street Journal ($) article reports on Rainwater’s latest investment — buying a 7.5% stake in battered telecommunications giant Global Crossing Ltd. in recent weeks as its share price plunged in response to new accounting troubles and possible delisting from Nasdaq.
News of Mr. Rainwater’s investment in Global Crossing along sent the company’s shares up $1.30 to $10.70 yesterday afternoon. The stock had lost almost 40% of its value in less than the past month after management announced that it might need to restate financial results for the past two years and that Nasdaq may delist the company.
Global Crossing was one the biggest stars of the telecom boom and its founders were big contributors to President Clinton’s second campaign. But the company slid into chapter 11 in 2002 amid the market downturn and questions about its accounting. It emerged from Chapter 11 in December 2003 with a cleaned up balance sheet, only to announce in late April that poor internal controls had led management to underestimate access costs by between $50 to &80 million for gaining access to other telecom networks. That led the company’s auditor — Grant Thornton LLP — to withdraw its audits and left the company in violation of the conditions for listing on Nasdaq. Inasmuch as such errors (particularly just after getting out of bankruptcy) do not exactly generate confidence in management, Global Crossing’s ability to obtain new financing is subject to serious question in the investor marketplace.
Nevertheless, that’s when Rainwater went to work, according to the WSJ article:

As some investors fled the stock, Mr. Rainwater turned a relatively modest investment into a large stake, according to filings with the Securities and Exchange Commission. Mexican magnate Carlos Slim Helu, already a major shareholder, added to his stake and now owns 9.9% of the company. Mr. Rainwater declined to comment on his purchases. The company’s other major stakeholder, Singapore Technologies Telemedia Pte. Ltd., has a 61.5% stake.

Mr. Rainwater owns three million shares, according to the filings. His holdings represent 13.6% of the company’s publicly traded shares. Between March 17 and May 11, Mr. Rainwater spent $24.4 million on Global Crossing stock, with the purchases accelerating in the past two weeks as the share price fell into the single digits.

The telecommunications industry has been one of the most perilous investments over the past decade. For a variety of reasons, the huge run up in value in most telecommunications companies during the late 1990’s has been followed by a plunge in value that appeared to have no bottom. Rainwater’s bet is the first positive sign for a battered industry in a very long time.