Fly, Don’t Buy – Why Airlines Are a Mistake
Posted on Friday, July 27th, 2007 | In Current Market NewsIf I’ve learned anything over the years, it’s that people don’t learn. Recently, I talked to my cousin who is an executive with a Russian airline company. In our discussion he mentioned that his company just received semi-unsecured loans (all planes are leased so they are not used as a collateral) from western banks at 10% a year. Though it sounds like a good rate in today’s interest rate environment, it is an airline and it is in Russia.
Why would somebody ever give a loan or buy airline bonds of any country? I can understand buying distressed bonds or maybe a stock as a trade. Not my kind of thing, but I can respect that. But a buyer (an investor) of fully priced (at par or close) airline bonds usually intends to hold them to their maturity, or for a long time. It is well documented that the airline industry as a whole has lost money over its cumulative existence. Thus, uneconomical, low fares that consumers have been enjoying over the years were subsidized by bond and equity investors. This is great for consumers, not so good for providers of capital. I almost want to say “Fly, don’t buy.”
Last 5 posts by Vitaliy Katsenelson
- Forbes Praises Active Value Investing - May 24th, 2008
- Kiplinger Interview on Jos. A. Banks - May 24th, 2008
- Income Pie Implications - May 13th, 2008
- Plane Lessors Headed to the Desert - May 13th, 2008
- Lloyds TSB, Still a Good bank but cautious… - May 13th, 2008
Airline, airline bonds, Airline Industry, buy airline bonds, Current Market News, Russia
 About Vitaliy Katsenelson (http://contrarianedge.com)
VITALIY N. KATSENELSON, CFA, has been involved with the investment industry since 1994. He is a portfolio manager with Investment Management Associates, where he comanages institutional and personal assets utilizing fundamental analysis. He is also an adjunct faculty member at the University of Colorado at Denver, Graduate School of Business where he teaches Practical Equity Analysis and Portfolio Management class. He wrote a book Active Value Investing: Making Money in Range-Bound Markets published by John Wiley & Sons in September 2007. Katsenelson is a regular contributor to the Financial Times, MarketWatch from Dow Jones, and Minyanville.com. This website contains articles Katsenelson wrote over the years for afformentioned publications (and TheStreet.com, RealMoney.com, The Motley Fool), as well as some more exclusive content. Look here for high-quality analysis and thoughtful, detailed, and complete articles on a number of issues involved in investing. He is a CFA charter holder, member of CFA Institute, has served on the boards of the CFA Society of Colorado, and is currently on the board of the Retirement Investment Institute. Katsenelson received both his bachelor of science and his master of science in finance from the University of Colorado at Denver, where he graduated cum laude. |
No recommendations, either expressed or implied, are being made to buy, sell, hold or short any of the mentioned stocks. No legal, tax or accounting advice is expressed or implied. Always contact your attorney, CPA, or tax advisor before acting on any legal or tax issues. StraightStocks.com is not responsible for the content, products, or services of any of the advertisers on this site. StraightStocks.com receives compensation from advertisers on this blog. Services and products referred to herein are trademarks, registered trademarks, servicemarks, and/or registered servicemarks of their respective trademark or servicemark owners.