Airline Bonds Get Boost After Big Merger

Airline Bonds Get Boost After Big Merger

Author: Steve Anderson on May 5, 2010

The big merger between United (NASDAQ: UAL) and Continental (NYSE: C), which we talked about here a couple days ago, has had an unexpected side effect, which is great news for all airlines--airline bond yields are now the shiniest pieces of junk in the whole junk-bond market.

Yields in airline bonds haven't been this low in fully two years, so saith Bloomberg, who followed it up with a strange assertion--a rebound in air traffic has created the drop, thus making it easier for carriers to repay debt, and therefore take on additional debt.

Airline bonds are currently carrying a yield, again according to Bloomberg, at 6.04 percentage points, which is only .43 percentage points wider than the average junk bond, making it one of the most stable issues in the junk bond market.

Of course, some are taking this as further sign of a nascent recovery--if transportation issues are stabilizing, they can take on debt more readily, keep their operating capital levels sufficiently high, and not find themselves behind an eight-ball of huge payouts to debtholders. But that's a bit far to go, I suggest, and note that the rest of things aren't doing that much better to consider this any more than an isolated bit of good news for an industry that's had a lot of hard times already.

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