Zacks.com Analyst Blog features: LAN Airlines S.A. (NYSE: LFL), TAM S.A. (NYSE: TAM), Boeing Co. (NYSE: BA), General Motors (NYSE: GM) and Toyota Motors (NYSE: TM).
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Here are highlights from Monday’s Analyst Blog:
The merger between LAN Airlines S.A. (NYSE: LFL) and TAM S.A. (NYSE: TAM), announced on August 2010, is expected to close by the mid of fiscal 2011. The merger is christened as LATAM Airlines Group S.A. (LATAM). On conclusion of the merger, LAN will become the parent company with a 73% stake in TAM and shareholders of TAM will receive 0.9 shares of LATAM for each share of TAM. It will be an all-stock transaction of approximately $2.7 billion.
The merger is expected to provide annual synergies of approximately $400 million, out of which approximately $133 million will be realized in the first year of the close of transaction and $267 million in the next two years. Passengers and cargo customers of both companies will benefit from the increase in the number of flights, destinations and connections.
LAN will benefit from the geographical diversification. Moreover, LAN is well positioned to benefit from the global economic recovery, particularly from the emerging economies in Latin America.
The economic growth in the emerging markets will be higher than the developed markets. These markets have considerably boosted passenger traffic both domestically and internationally, and would continue to do so in future. LAN’s continuous fleet expansion and renewal program are also expected to fetch profitable returns in future.
Recently, LAN signed a memorandum of understanding for buying 50 modern Airbus A320 family aircraft to be delivered between 2012 and 2016. It has also signed an agreement with The Boeing Co. (NYSE: BA) for five 787-8 Dreamliner aircraft in 2012 in addition to ten Boeing 787-8 Dreamliners announced in March 2010.
During the third quarter of fiscal 2010, LAN recorded a 14.2% increase in passenger traffic and 19.0% in cargo traffic. The primary reason for this increase was the new routes to United States, Europe, Mexico and the Caribbean together with improving economic conditions.
Traffic also increased in the first two months of the fourth quarter of fiscal 2010 with 16.0% in October 2010 and 11.2% in November 2010. During October, domestic traffic grew 11.9% and international traffic went up by 17.7% year over year. Cargo traffic shot up 18.5% year over year based on higher imports into Latin America and increased operations to Europe with the Boeing 777-200 freighter fleet. During November 2010, domestic and International traffic grew 7.4% and 12.9%, respectively, with 9.6% increase in cargo traffic.
We reiterate our Neutral recommendation on the ADR for the long term. The stock retains its short-term Hold rating (Zacks #3 Rank).
GM To Recall Almost 100,000 Vehicles
General Motors (NYSE: GM) announced that it would recall about 100,000 vehicles in order to fix problems with their airbags and rear axles. The recalled lineups will include Cadillac, Chevrolet and GMC.
The first set of recall involves 96,000 units of Cadillac CTS of model years 2005 and 2007. The vehicles suffer from problems with their passenger-side airbags, leading to its non-deployment and increasing the risk of injury in the event of a crash.
The second set of recall impacts 1,200 units of Cadillac Escalades, Chevrolet Avalanches, Chevrolet Silverados and GMC Sierras. It is related to manufacturing defects of rear axle cross pin, which could possibly fracture and get displaced.
The second set of recall is expected to begin in January. However, it is unclear as of yet when the first recall would begin.
Few days ago, GM had announced that it will recall 111,136 units of some of its mid-size crossover lineups next month related to a problem with the anchor of the seatbelt buckle, leading to injury in a crash.
The recalled lineups include Chevrolet Equinox (67,805 units), GMC Terrain (29,926 units) and Cadillac SRX (13,405 units) from the 2011 model year. As many as 97,843 units of these vehicles were sold in the U.S. and the rest in Canada and Mexico.
Since the beginning of the year, GM has recalled about 3 million vehicles in the U.S., Canada, Mexico and South Korea. Among these, the largest recall was made in June, involving 1.5 million vehicles, in order to fix a problem with a heated windshield wiper fluid system that has been causing fire in the vehicles.
Automotive safety recalls have become the talk of the town after Toyota Motors’ (NYSE: TM) announcement of the largest-ever global recall of about 11 million vehicles since September last year. The automaker made greater than 15 recalls, more than any other automaker. They were related to problems associated with faulty accelerator gas pedals, slipping floor mats and defective braking systems.
Recently, The Transportation Department of U.S. informed that Toyota will pay $32.4 million in fines related to two separate investigations leading to late recall of millions of defective vehicles on top of the highest-ever fine of $16.4 million paid earlier this year related to the same issue.
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