Must-know: Paulson & Co.'s important positions in 1Q14 (Part 6 of 8)
Paulson & Co. and American Airlines
John Paulson’s Paulson & Co. started new positions in Verizon Communications Inc. (VZ), CBS Corp. (CBS), and Valeant Pharmaceuticals (VRX) and upped its positions in Cobalt International Energy (CIE) and American Airlines Group (AAL). Notable position decreases were Family Dollar Stores (FDO) and Freeport-McMoRan Copper (FCX).
Paulson upped its position in Cobalt International Energy (CIE) last quarter. The position now accounts for 2.18% of Paulson’s $20 billion 1Q 2014 portfolio, up from the 1.06% that was started in 4Q 2013. The airline carrier also saw Appaloosa Management increase its stake last quarter.
American Airlines parent AMR Corporation and US Airways Group (LCC) officially announced their $17 billion merger on December 9 last year. Under the merger, US Airways Group became a subsidiary of AMR Corporation, which changed its name to American Airlines Group Inc. (AAG). American Airlines emerged from bankruptcy and combined with US Airways under a new stock ticker, AAL. According to the press release on the merger, the transaction is expected to generate more than $1 billion in annual net synergies by 2015.
For 1Q 2014, which was American Airlines Group’s first full quarter as a merged company, the results beat on earnings but missed on revenue estimates. The company reported $0.54 earnings per share for the quarter on revenue of $10 billion, up 5.6% year-over-year on a combined basis. The growth in revenues was driven by a 1.7% increase in revenue passenger miles and a 3.2% increase in yield. The airline carrier estimated that weather-related cancellations reduced 2014 first quarter revenue by approximately $115 million. For the first quarter of 2014, American Airlines reported a GAAP net profit of $480 million compared to a net loss of $341 million in the first quarter of 2013. The company’s GAAP results for first quarter 2013 reflected AMR Corporation prior to the merger. The quarter included $78 million of net special credits, primarily from the gain on the sale of slots at Washington’s Reagan National Airport.
American Airlines noted in its 10Q filing that during the first quarter of 2014, the U.S. airline industry was significantly impacted by severe winter weather. February included the highest number of cancellations in the U.S. airline industry in 25 years. Despite these operational challenges, the U.S. airline industry experienced year-over-year growth in passenger revenues, driven by strong demand for air travel. Although the U.S. airline industry is benefiting from a favorable revenue environment and moderating fuel prices, uncertainty exists regarding the economic conditions driving these factors, according to the company’s filing.