Archive for May, 2008

Airline shares hit as soaring fuel bills dent profits (Reuters)

Thursday, May 22nd, 2008 | Finance News

SINGAPORE (Reuters) -
The world's top airlines warned on
Thursday that soaring fuel prices were hitting profits,
prompting some to increase fares, and global leader American
Airlines
announced thousands of job cuts to counter higher
costs.

Airline stocks fell sharply in Asia and Europe after stock
in American's parent AMR Corp (AMR.N) shed a quarter of their
value as investors fretted over the cost of jet fuel, which is
most airlines' single-biggest expense.

The airline industry is struggling to cope with oil prices
that have surged 170 percent since the start of last year as
economic uncertainty threatens growth.

"(The oil price) is going to actually send some (smaller)
airlines into bankruptcy," said Nick van den Brul, analyst at
Exane BNP. "The best position for an airline is to have a good
hedge already in place ... a euro exposure to the dollar and
also the ability to cut costs."

The cost of jet fuel traded in Singapore has
risen by more than half this year alone and analysts expect
more cost cutting, particularly among U.S. carriers as an
economic slowdown puts people off traveling.

American said it would begin charging passengers to check
in their bags and will retire 75 aircraft from its ageing
fleet.

Air France-KLM (AIRF.PA), the world's biggest airline by
revenue, warned that soaring fuel prices would slash operating
profits this year, knocking its shares down nearly 9 percent to
two-month lows even as it reported higher 2007 operating
profit.

Chief Executive Jean-Cyril Spinetta warned that Air France
would have to brace for a 1.1 billion euro ($1.73 billion) rise
in fuel costs this year. He said the airline would implement a
150 million euro ($236.4 million) cost savings plan.

"The current year is set to be challenging, with the oil
price
and the global economy creating significant uncertainty,"
Spinetta said in a statement.

SEVERE IMPACT

In Australia, Qantas Airways (QAN.AX) increased air fares
for the second time in less than a month in response to record
fuel prices. It will put up the cost of an international flight
by 4 percent and domestic fares by about 3 percent.

Japan Airlines (9205.T), Asia's biggest carrier by sales,
said it needed to raise its fuel surcharge as it could no
longer absorb cost increases on its own.

"We try to absorb it ourselves but it's beyond our ability
to absorb all of it and we need to transfer (some) to our
customers," JAL President and Chief Executive Haruka Nishimatsu
told Reuters in Singapore.

JAL shares fell 2 percent in a positive Tokyo market
(.N225).

Fitch Ratings said in a report this week that high fuel
costs and potentially weakening demand will force Japan's two
dominant airlines, JAL and All Nippon Airways (9202.T), to
focus on strict capacity discipline and tighter non-fuel cost
controls.

Air Canada (ACa.TO) Chief Executive Montie Brewer said on
Wednesday that fuel costs were consuming a growing share of
income and would likely dent demand for air travel.

"The severity of it will impact customer demand. We'll see
how much the customer can absorb and still plan on traveling,"
he told reporters.

Brewer said every $3 rise in the price of a barrel of crude
oil
adds $75 million to Air Canada's annual fuel costs.
He said fuel accounts for 31 percent of the airline's operating
costs, up from a quarter last year.

(Writing by Jan Dahinten, Editing by Ian Geoghegan)

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Adelphia founder and son to be resentenced (Reuters)

Wednesday, May 21st, 2008 | Finance News

NEW YORK (Reuters) -
A U.S. federal judge on Thursday will
re-evaluate the prison sentences of Adelphia founder John Rigas
and his son Timothy after an appeals court overturned one part
of their convictions last year.

The pair, who were convicted by a jury in 2004 of
concealing loans and stealing millions from the cable operator
are currently serving prison terms of 15 and 20 years,
respectively.

U.S. District Judge Leonard Sand in Manhattan will
re-sentence the pair at noon, according to court documents.

The Rigases, who began serving their prison term last year,
have voluntarily waived their right to appear in court for the
re-sentencing, according to court documents.

After the Enron and WorldCom cases, Adelphia was one of the
biggest corporate fraud prosecutions in recent years. The
father and son, the company's former chief financial officer,
were accused of looting the company to pay for personal land
deals and vacation homes.

In May 2007, the U.S. appeals court in New York upheld the
pair's convictions on 22 of 23 counts of conspiracy and
securities and bank fraud. It reversed their conviction on one
count of bank fraud, citing insufficient evidence.

The Rigases lost their final appeal in March of this year,
when the U.S. Supreme Court declined to review the earlier
ruling by the appeals court.

Adelphia was the fifth-largest U.S. cable firm before its
2002 collapse. Its cable system assets have been sold to
Comcast Corp (CMCSA.O) and Time Warner Inc (TWX.N).

(Editing by Tomasz Janowski)

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NRG makes unsolicited $11 bln bid for Calpine (Reuters)

Wednesday, May 21st, 2008 | Finance News

NEW YORK (Reuters) -
Power company NRG Energy Inc (NRG.N)
has made an unsolicited bid to buy competitor Calpine Corp
(CPN.N) for about $11 billion in stock, the companies said on
Wednesday.

Calpine, which emerged from bankruptcy earlier this year,
said it was reviewing the bid to determine if it was in the
best interests of its shareholders.

It said it received the unsolicited proposal from NRG on
May 14. Under the terms of that proposal, Calpine shareholders
would receive 0.534 shares of NRG stock for every Calpine
share.

That would value Calpine shares at around $22.70 a share,
giving shareholders a premium of about 6.7 percent based on the
shares' Wednesday closing prices.

New Jersey-based NRG said a deal would create a multi-fuel
power company with four regional generation businesses in all
the major competitive power markets in the United States. It
said each of those businesses would have at least 8 gigawatts
of existing generating capacity.

"We think what we've put on the table is a compelling value
proposition
," NRG Chief Executive David Crane said in an
interview.

"Our point of view is that the premium we've offered is
just one part of the (deal's) value ... these companies
together have tremendous value creation potential," he said.

Crane said Calpine's chairman, William Patterson, called on
Friday to say they were giving the offer serious consideration,
but gave no details on timing or how the board was leaning. He
said he had not heard from the Calpine board since.

Calpine emerged from bankruptcy in January with more than
$10.6 billion in debt. The company's shares have traded between
$15.10 and $21.72 since.

HARBINGER OF DEAL

The bid was initially disclosed earlier on Wednesday when
Calpine's largest shareholder, hedge fund Harbinger Capital
Partners
, released a letter to Calpine's board urging the
company to open negotiations with NRG.

Harbinger, which owns more than 24 percent of Calpine's
shares, said it believes the offer represents a good starting
point and that Calpine's board should immediately negotiate
with NRG over terms.

"The timing of this offer is excellent for Calpine, as it
has not yet settled on a strategic view or chief executive
officer
," Harbinger Managing Director Howard Kagan said in the
letter.

"NRG offers the combined company a fully focused management
team and a well articulated strategy already in place," he
said.

NRG has about 23,000 megawatts of generation in the United
States and 1,200 megawatts internationally. Its portfolio of
power plants includes coal, natural gas and part of one nuclear
plant.

Calpine has close to 24,000 megawatts of generation in the
United States, nearly all of which are natural gas-fired
plants. The remainder are geothermal power plants.

A combination with Calpine would give NRG more presence in
the Western U.S. power market, NRG's smallest market, and in
the Southeast, with little overlap in the Northeast, where NRG
already owns 15 power plants.

It would also deliver at least $100 million a year in
general and administrative savings as well as billions of
dollars in tax benefits, NRG said.

In Texas, where NRG is the second-largest generation owner
with nearly 11,000 megawatts, a merger with Calpine could lead
to some power plant sales as the combined company would likely
exceed a 20-percent limit on generation ownership in the
state's deregulated market.

Without divestitures, NRG would have difficulty pursuing
its plan to double output at the South Texas Project, the
state's largest nuclear plant, by 2,700 megawatts by 2016.

Crane said they would need to sell somewhere between 3,000
megawatts and 5,000 megawatts of generation in the state.

NRG shares closed up 36 cents to $42.51, while Calpine
added 8 cents to $21.28, both on the New York Stock Exchange.
Calpine rose 3.4 percent to $22 in light trading after the
market closed.

(Additional reporting by Eileen O'Grady in Houston; editing
by Jeffrey Benkoe, Andre Grenon and Lincoln Feast)

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