Albert Einstein defined insanity as "doing the same thing over and over again and expecting different results." He could have easily been talking about investing in the the global airline industry.
Japan Airlines Corp. (JALSY) today became the millionth or so carrier to seek protection from its creditors in the last few years in what Bloomberg News says is Japan's fourth biggest bankruptcy. The filing came after a 900 billion yen ($10 billion) turnaround plan after four government bailouts to revive Asia's most indebted carrier failed, the news service says. (I has to reread that sentence again just to be sure it said four bailouts.)The company is the parent of JAL, Japan's national airline. It controls many attractive routes in China and Japan which have attracted interest from major American carriers, Delta Air Lines Inc. (DAL) and AMR Corp.'s (AMR) American Airlines, which are considering investing in the troubled carrier. Whether this is a good idea for the companies' shareholders is another question.
The airline industry is the gift that keeps on giving for bankruptcy attorneys and banks while taking from shareholders. Get a load of the list of bankruptcy filings on the website of the Air Transport Association dating back to 1979. It's enormous and includes recent casualties such as Aloha and ATA Airlines; but even scarier is the fact that the International Air Transport Association recently raised its forecast for or net losses for the global industry to $5.6 billion from $3.8 billion.
The industry is a shadow of its former self. In 2001, there were about 522,000 full-time employees working at airlines. That figure dropped to 387,4000 last year, according to industry statistics. Nonetheless, the workforce is represented by politically powerful unions and members of Congress eager to insure that airline service to their constituents is not interrupted. Some analysts have wondered whether the airlines need a bailout given the recovery in the economy. It also has shown some signs of life lately.
Last year, UAL Corp.'s (UAUA) United Airlines stunned the aviation world and Wall Street when it announced that it was looking to spend tens of billions of dollars over the next few years replacing its aging fleet of 150 aircraft. Shares of the Chicago-based airline have soared more than 290 percent over the past six months. Even so, shares are down 73 percent from their level three years ago. Delta and Continental Airlines Inc. (CAL) have also spiked recently. Lower oil prices certainly helped but some economists are forecasting oil to hit $100, which would cause airline stocks to fall yet again.
Then the whole crazy carnival that is the airline industry will begin again.
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »