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Quick Hits: Airlines Eye Federal Funds

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Brief scrutiny of today's headlines.

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Airlines are circling Washington, DC, looking for a federal handout.

The industry isn't yet seeking bailouts for individual carriers: Gerard Arpey, CEO of American Airlines (AMR), says any stimulus intended to goose the economy should include federal dollars to improve air traffic control systems and upgrade runways. This could play into President-Elect Barack Obama's stated intention to spend heavily on infrastructure as part of a plan to restart the economy.

North American carriers are expected to report combined losses of about $3.9 billion in 2008, but will generate about $300 million in profits next year, the International Air Transport Association says.

The trade group, representing about 230 airlines that handle about 93% of international traffic, says airlines worldwide may lose about $2.5 billion next year, down from about $5 billion this year.

The reason: Lower fuel prices will more than offset the declining number of passengers. Crude oil is priced in US dollars. The greenback has gained about 18% against the euro and about 25% against the pound in the last 6 months. This reduces the benefit of falling oil prices for foreign airlines.

The airlines are betting passengers will return in large numbers when the economy rebounds and want to start the upgrades needed to handle increased traffic now. It's a reasonable bet - and the proposed spending is almost certain to benefit key parts of the Democrats' coalition. Therefore, the airline industry has a good chance of getting something in the next round of massive federal spending.
No positions in stocks mentioned.
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