Airline safety concerns continued to grow, with American Airlines canceling more than a thousand flights yesterday and grounding three hundred of is planes after nine of them failed newly aggressive Federal Aviation Administration inspections of their wiring. American will have about 900 more cancellations today, approaching half of the carrier’s flights, says The Wall Street Journal on B1. The Los Angeles Times says more than 100,000 travelers were affected yesterday.
The American planes had been grounded just two weeks ago for similar concerns, and the hometown Dallas Morning News quotes an unnamed federal official saying the FAA didn’t tell the airline at the time that it was not in compliance.
It was the latest fallout from a congressional whistleblower investigation of lax FAA oversight of aircraft safety that began last month with allegations that inspectors let Southwest Airlines planes keep flying despite missing safety inspections.
As if the airlines could afford this. The Financial Times reports that American is paying for its stranded travelers’ hotels and food and giving them $500 travel vouchers.
The New York Times says on page one that the regulatory climate has shifted sharply from the post-9/11 solicitude meant to keep the struggling airlines above water, err, the clouds.
Still, former F.A.A. officials say there has long been concern over the warmth between agency inspectors and the airlines they are charged to investigate.
On one hand, the flying public can be helped if inspectors are thoroughly familiar with an airline’s record. But such familiarity can also cause inspectors to give an airline some breaks, one official said.
On C1, the NYT says this is a long time coming:
American Airlines and its domestic competitors have been scaling back maintenance spending for years. Some airlines sent work overseas in search of cheaper labor. Some also cut wages of mechanics in the United States and reduced their number. Others quickened the pace of work at maintenance facilities.
“They let too many people go,” said Kevin Cornwell, an MD-80 captain at American who is also a pilots union official. “They sold spare parts years ago to raise cash. Things don’t get fixed as fast.”
In a timely story, the NYT says (also on C1) that a pilot shortage is lowering standards at airlines and that “regional airlines have had to reduce hiring standards drastically.” A few years ago, they required new pilots to have a minimum 1,500 flight hours. Now it’s just 500.
Bank fears surge
The FT on page one says money markets are “signaling renewed fears about the financial strength of banks,” a sign that the three-week pause in the panic may be over for now.
The paper says the so-called Libor spread—a measure of how much banks are charging to lend to each other overnight—has almost returned to the high levels it reached before the Bear Stearns bailout.
Tensions are rising in the money markets in spite of the injection of huge amounts of liquidity into the banking system by central banks. Traders say market conditions suggest the Bear rescue has not completely alleviated worries about counterparty risks. Until confidence is restored, the availability of credit to investors and companies will be restricted, potentially hurting the broader economy.
Yahoo v. Microsoft, round III
The WSJ says on A1 that Yahoo and AOL are “closing in on a deal” to merge their Internet properties in an effort to block Microsoft’s $45 billion bid for Yahoo. The Journal and the NYT report that Microsoft is in turn talking with WSJ owner News Corporation about a joint bid.
Time Warner would give cash and the AOL portal (but not the dial-up business) to Yahoo in exchange for 20 percent of the newly inflated operation, valuing AOL at $10 billion and merging two top-ten Web sites. Bloomberg quotes investors saying the moves will likely force Microsoft to up its already high bid, but that it will ultimately win. It seems unlikely that Yahoo shareholders would spurn a bid that valued the shares at a 60 percent premium and see the shares collapse in the short term in the hopes of a better long-term return.
The WSJ notes a Microsoft/News Corporation deal would “create a huge one-stop shop for online advertisers and bring together some of the largest players in social networking, online news and email.”
The Times says:
The talks represent a change of sides for Mr. Murdoch. Just days after Microsoft made its bid, he flew to the West Coast and had dinner with Jerry Yang, Yahoo’s chief executive, offering his assistance in fending off Microsoft.
The NYT says it’s conceivable that Rupert Murdoch’s News Corp. could make a deal of its own with Yahoo. The FT notes on page one that Yahoo is also exploring an advertising deal with Google, which could result in a three-way Internet power alliance if Yahoo manages to remain independent.
There’s yet another inflation story this morning, this one on the front page of the WSJ. The paper reports an astonishing-if-true World Bank estimate that food prices have risen 83 percent worldwide over the last three years, and notes that oil prices hit a record $112 a barrel yesterday.
The WSJ blames inflation on a few things: crop use for alternative energy, increased demand for natural resources in the developing world, the weak dollar, and globalization (the economic booms in places like China and Russia is raising prices at home and abroad), and somehow manages to make it through the entire story without mentioning the word “stagflation.”
Lehman’s mysterious liquidation move
The WSJ reports on C21 that Lehman Brothers has liquidated three funds worth a billion dollars and brought their assets onto its balance sheet. IT also bought $800 million from other funds. Its shares dropped 7 percent after the news yesterday.
It’s difficult to understand from the reporting so far what the cause is exactly, but the Journal says two were simple money-market funds and the other was an “enhanced-cash” fund. Did Lehman have to bail out money-market funds, which used to be considered safer than safe, to keep them from “breaking the buck,” or returning less to investors than they invested? Such an event might cause a run on the bank that Lehman and others can’t exactly handle right now.
We’ll keep an eye out for a better explanation.
Katie’s short, sad trip at CBS
The WSJ reports on B1 that Katie Couric will be out at CBS by early next year, well before her contract ends, as her Evening News continues to struggle in the ratings. The piece quotes sources on both sides. The LAT writes a brief story that takes CBS’s word for it, saying a person familiar with the situation says “her exit is not in the works.”
In economic news, the FT reports that the International Monetary Fund is predicting anemic U.S. growth through the end of next year. It says the U.S. economy will grow 0.5 percent this year and 0.6 percent in 2009.