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By Jason Stipp | 01-13-2012 12:00 PM

Reading Chapter 11

Morningstar markets editor Jeremy Glaser offers updates on entities that are dodging, filing, forecasting, or flirting with bankruptcy.

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five. Bad news for some businesses as headlines of bankruptcy have crept back into the news lately. Morningstar markets editor Jeremy Glaser is joining me today with five bankruptcy-related stories. Thanks for joining me, Jeremy.

Jeremy Glaser: You're quite welcome Jason.

Stipp: What do you have for the Friday five this week?

Glaser: Well this week we are going to talk about American Airlines, retail sales, the Federal Reserve, Europe and finally Hostess.

Stipp: So American was a very high-profile bankruptcy that we heard about a couple of weeks ago. What's the story today? What's the new news on that company?

Glaser: When they went into bankruptcy, it wasn't really clear what their exit strategy was. We knew they were going to try to reduce cost, negotiate with the unions in order to get some of their labor costs down and maybe shed some aircraft that were too expensive for them.

But this week we got word that they have a lot of suitors who may want to take over American Airlines. Delta, TPG, which is a private equity firm, and US Airways all have apparently expressed interest in taking over American Airlines and really trying to integrate their route network into their existing networks, or for TPG’s case, maybe partnering with another airline in order to get American Airlines back to profitability.

I think the question here is going to have to do with anti-trust. Delta is already an incredibly large airline after the merger with Northwest. They are just a little bit smaller than United Continental, another merger, and if Delta were to combine with American Airlines, they really would become a huge monolith. And it is not clear that the federal government would really allow so much concentration in the aviation industry.

But on the other hand, this consolidation has really led to some good financial performance for the airlines. The airline industry has been a running joke in the investment community amongst a lot of investors for a long time, in that it just continues to destroy value. But over the last couple of years, there has been a lot of discipline with capacity, a lot of discipline with pricing, and these mergers really have brought a lot of these companies to profitability.

So, it might actually make sense for one of these mergers in terms of industry profitability, but we just don't know how the government is going to react to the anti-trust issues. I think we will have a few months to talk about this; I don't think any bid is necessarily imminent, but certainly it is going to be an interesting thing to watch and an interesting development in that industry.

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