These previous posts have examined the hopelessly obsolescent Wright Amendment, which protects DFW Airport and its main airline — American — from competition that is beneficial to consumers by restricting Southwest Airlines and other discount carriers from flying passengers from Dallas’ more consumer-convenient Love Field to most states. Despite the absurdly anti-competive and anti-consumer nature of the Wright Amendment, American has done a good job of lining up powerful politicians on both sides of the aisle to oppose repeal of the outmoded law. As this Ft. Worth Star-Telegram article reports, American’s lobbying efforts appear to have paid off.
Rather than an outright repeal — or at least a reasonable phase-out — of the Wright Amendment, politicians and airline officials met Friday at DFW to talk about a “compromise” that would delay long-haul flights into Love Field for at least eight more years. This proposal flies in the face of the latest positive news from the exemption of a state from the Wright Amendment — since Missouri was exempted from the Amendment in November and Southwest started flying directly from Love Field to St. Louis and Kansas City, airfares have decreased dramatically and passenger traffic to those cities increased by almost 45% percent in the first two months. But rather than passing along this obvious benefit to citizens wanting to travel to other locales, our politicians are talking about forcing consumers to wait until almost 2015 to enjoy this benefit of competition.
I can hardly wait to hear the rationalizations for that one. One benefit of publicity over the Wright Amendment is that it provides a clear view regarding the leadership qualities of Texas politicians. Although American has bought support of the Wright Amendment from both sides of the political aisle, it is interesting that most of the Amendment’s supporters are Republicans, which is supposedly the pro-business and pro-competition party. So much for such myths.
Update: Mitch Schnurman has further analysis on the the skinny on the compromise, including Southwest’s conclusion that GOP Rep. Joe Barton would have bottled up an outright repeal of the Wright Amendment.

Things are not looking all that rosy these days at Austin-based computer powerhouse, Dell, Inc. While competitor Hewlett-Packard, Inc. is undergoing a revival of sorts, Dell’s revenue growth has slowed considerably and profits have fallen. Not surprisingly, Dell’s share price has steadily declined to around $25, a loss of about 40% in less than a year. Long gone are the heady days of the company’s $60 share price in 2000.
Noting these problems, this NY Times article provides a good overview of Dell CEO Kevin B. Rollins‘ plan to reverse the downward trend at Dell. The seriousness of Dell’s problems is perhaps best reflected by the fact that the company is questioning virtually everything in its business model, including the possibility of breaking its longtime exclusive alliance with major chip supplier, Intel. As the story notes, it’s far from clear whether even Rollins’ plan will revive Dell’s dominance in the notoriously competitive PC manufacturing industry, so stay tuned.

This Reuters article reports this morning that Madrid-based Banco Bilbao Vizcaya Argentaria SA (“BBVA”) is considering an acquisition of McAllen, Texas-based Texas Regional Bancshares Inc., a holding company with with a market capitalization of $1.87 billion that is in the retail banking business under the name of Texas State Bank.
BBVA is Spain’s second-largest bank that has traditionally focused on the remittance market in the U.S. where it facilitates the transfer of funds by immigrants to their home countries. Lately, BBVA has been expanding its U.S.-Mexican business operations — its Bancomer unit is already Mexico’s largest bank and it recently purchased Laredo National Bancshares for $850 million, so the possible acquisition of Texas State Bank’s owner would constitute a further expansion of BBVA’s U.S. business operations. BBVA is a big outfit, with a market cap of over $66 billion, net income of over $3.8 billion last year and over 90,000 people employees worldwide.
Texas Regional Bancshares is a regional bank located in Texas’ Rio Grande Valley (wonderfully depicted in the movies Lonesome Dove and Lone Star) that has about 75 branches and $6.5 billion in assets based primarily in south Texas. In 2002, Texas Regional commenced an expansion plan in which it has bought small banks in the Houston, Corpus Christi and Dallas areas, which likely makes the bank even more attractive to BBVA. With the large immigrant populations in both Houston and Corpus, BBVA could use the Texas State Banks as the foundation of a substantial increase in its remittance business in Texas while also expanding its traditional banking operations in the state.

Although somewhat lower on the radar screen than General Motors’ more well-publicized troubles, Ford Motor Co. is reeling today after Fitch Ratings downgraded the company’s credit rating (see also here) two notches to the highly-speculative single-B-plus level while analyzing how creditors might fare in a corporate reorganization of Ford under chapter 11. Despite the downgrade, Ford’s rating is still higher than GM’s credit rating, which is B3 by Moody’s Investors Service and single-B by Standard & Poor’s and Fitch.
Inasmuch as Ford (as with GM) continues to have a strong liquidity position (about $24 billion in cash and securities as of the end of the first quarter), a bankruptcy filing is probably not imminent even though Ford estimates that it will burn through about $5-6 billion of that cash in 2006. At the close of yesterday’s New York Stock Exchange composite trading, Ford shares were down 2% to $6.66 while on the debt side, Ford’s 7.45% bonds due in 2031 fell 3.5% to about 70 cents on the dollar, which translates into a yield of 11% that is slightly below the yield on GM’s 8.375% bonds that mature in 2033.
In its analysis, Fitch reminds investors that companies with a single-B-plus rating end up in bankruptcy about 24% of the time within five years. In a hypothetical Ford bankruptcy case, Fitch estimated debt holders would get back 50% to 70% of their investment from Ford and 70% to 90% of their investment in Ford Credit Company.

Plaintiff’s lawyer William Lerach is already looking to make a handsome $1 billion fee as lead counsel in the main Enron class action securities fraud lawsuit. Now, he’s looking for a little more from an Enron spinoff.
Yesterday, Lerach’s firm filed a lawsuit (press release here) in state district court in Houston over the proposed management leveraged-buyout of Houston-based oil and gas pipeline operator, Kinder Morgan Inc. (previous posts here and here). A lawsuit filed last week in Kansas on similar grounds beat Lerach’s lawsuit to the courthouse door in the race to be the first lawsuit to challenge the proposed leveraged buyout.
As one would expect, Lerach’s lawsuit contends that KM’s officers and directors violated state law by proposing a price of $100 per share, which it said was “grossly inadequate and unfair.” Of course, that allegation is pure speculation at this point in that the proposed buyout is still subject to being outbid by a superior offer for the company. Expect the state court lawsuit to be removed by KM to federal court rather quickly, where it will likely rest fallow while either the proposed buyout or a superior proposal for the company is worked out.

Following up on thoughts expressed in this post on the Kinder Morgan leveraged buyout from earlier this week, this Opinion Journal editorial (and related WSJ ($) article) note that the trend toward private equity financing is a direct result of management realizing that public equity has become too pricey in the regulatory maze of the post-Enron era:

Behind much of this trend is basic economics. Hedge funds, pension funds and endowments are all looking for new places to invest their mountains of cash, and private equity has been offering some impressive returns. Corporate management, meanwhile, far from running from these new barbarians at their gates, often see a financial upside. With capital abundant, the cost of borrowing low and return on equity soaring, why not?
But that’s hardly the whole equation. At least part of the strength of private equity is a direct result of the problems besetting public markets. Public-to-private deals are in fact lengthy and costly and can lead to unpleasantness with shareholders–often via lawsuits. The fact that so many companies have nonetheless been willing to take the plunge speaks volumes about how eager they are to escape the increasing burdens of public-company regulation.

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Mitch Schnurman, the Ft. Worth Star-Telegram’s business columnist, notes that low-cost airline leader Southwest Airlines is now one of the industry leaders in pilot and flight attendant compensation:

Southwest employees are also paid some of the highest salaries in the business, with pilots and flight attendants at the top of the scale.
An experienced pilot at Southwest, for example, earns 45 percent more than his counterpart at United and almost 18 percent more than at American Airlines.
It wasn’t always that way. Three years ago, Southwest pilots were paid at least 20 percent less than pilots at legacy carriers. They usually made up the difference, and then some, from Southwest’s profit sharing and stock options.
Then the competition began restructuring after losing tens of billions of dollars. Companies shrank, went bankrupt and cut jobs, pay and benefits. Southwest, meanwhile, continued to grow, and workers received small, steady increases, without involuntary layoffs.
If you charted the airlines’ worker pay on a line graph, the lines would have crossed about 2004, with Southwest rising to the top and most of the competition heading south.

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The Wall Street Journal’s Alan Murray is rethinking the conventional wisdom with regard to Hewlett-Packard’s much-criticized 2002 acquisition of Houston-based Compaq Computer Company that many believe cost former HP CEO Carly Fiorina her job:

At a meeting of H-P’s board not long ago, Chief Financial Officer Robert Wayman did a retrospective look at the merger. The results were so compelling that even some board members were stunned, some attendees say.
At the time of the merger in 2001, the company set three broad goals: to strengthen its market position, to improve its competitiveness and to increase shareholder value.
H-P was in third place in the personal-computer market in 2001 and posting losses. Today, it is a strong second, breathing down Dell’s neck for the lead and posting profits — though still not as much as it would like. In the industry standard computer-server business, H-P was then in fourth place and bleeding red. Today it is No. 1 and nicely profitable.
On competitiveness, the company’s total operating expenses came to 21.5% of revenue back in 2001. Today, that is down to about 16% — and all but one percentage point of the decline happened before [current H-P CEO] Mark Hurd’s cost-cutting campaign took hold.
As for shareholder value — well, at the time Ms. Fiorina left office, there was little to boast about. But recently, H-P has surpassed all of its rivals. Total return to shareholders since the merger has been almost 50%. Dell has been almost flat in the same period, while IBM shareholders have lost substantial sums of money.

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Texas is a big business battlefield in the automobile wars, and this excellent Lee Hawkins Jr. – Norihiko Shirouzu/WSJ ($) article reviews the competive advantages that Toyota Motor Corp. enjoys in building trucks in its new San Antonio manufacturing facility over General Motors Corp’s reliance on its 50 year-old Arlington manufacturing facility. Not only does Toyota enjoy the advantages of newer equipment and more expansion room at its facility in comparison to the landlocked GM plant, a brief review of the cost structure of the two plants speaks volumes about GM’s current problems:

Two decades ago, GM factories suffered from a sizable gap compared with similar Toyota factories, as measured in the number of hours it takes workers to build a vehicle. Recent Harbour surveys show that this gap has narrowed substantially. But GM’s productivity gains are offset by higher hourly labor costs and the burden it carries for benefits owed to retirees.
In Arlington, GM pays union-scale wages of $26.50 to $30.50 an hour to its 2,800 hourly workers there. On average, GM pays $81.18 an hour in wages and benefits to U.S. hourly workers, including pension and retiree medical costs. At that rate, labor costs per vehicle at Arlington are about $1,800, based on the Harbour Consulting estimate of labor hours per vehicle.
In San Antonio, Toyota will use non-union labor and will start its 1,600 hourly workers at $15.50 to $20.33 per hour, which will grow after three years to $21 to $25. Harbour Consulting President Ron Harbour estimates Toyota’s total hourly U.S. labor costs, with benefits, at about $35 an hour — less than half of GM’s rates. The brand-new plant won’t have any direct retiree costs for many years. So if the San Antonio factory does no better than match the Arlington plant in productivity, it could still enjoy a labor cost advantage of about $1,000 per vehicle, a substantial sum in industry terms. That’s money Toyota could translate into extra standard features — such as stability control — that could make its trucks more appealing.

Read the entire article. Despite GM’s troubles, the company can still produce a pretty slick commercial.

The Securities and Exchange Commission has chickened out on reforming implementation of one of the most costly and misdirected forms of business regulation in recent memory, the Sarbanes-Oxley legislation. The SEC press release is here and previous posts on SOX are here.
Larry Ribstein has followed closely and written extensively on this issue, and his post on the SEC’s most recent punt is here.