• Continental Airlines Inc. (CAL) became the latest airline to announce reduced flight service and jobs cuts yesterday (Thursday). Continental will eliminate 3,000 jobs and 16% of its flight capacity, The New York Times reported. The cost cutting efforts follow similar moves from UAL Corp.’s (UAUA) United Airlines, Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL).

• France Telecom SA (ADR: FTE) announced yesterday (Thursday) that it was pursuing a $42 billion bid for Sweden’s TeliaSonera AB (PINK: TLSNF), The Associated Press reported. TeliaSonera dismissed the initial offer as too low, but France Telecom reported it has the backing of the French government and could up its bid.

• The Mortgage Bankers Association (MBA) announced yesterday (Thursday) that both the percentage of loans in foreclosures, as well as the number of foreclosure starts, climbed to levels not seen since 1979, MarketWatch reported. For one- to four-unit properties, 2.47% of all mortgages outstanding were in foreclosure, up from 2.04% in the fourth quarter, according to the MBA’s latest National Delinquency Survey. At the end of first quarter 2007, only 1.28% of such homes were in foreclosure.

• The number of U.S. citizens filing first time unemployment claims fell last week, the Department of Labor said yesterday (Thursday). Initial jobless claims decreased by 18,000 to 357,000 in the week that ended May 31, the lowest level in more than a month, due in part to the Memorial Day holiday, Bloomberg News reported.

• Stocks in China fell to a six-week low Thursday (yesterday) on speculation that the government would tighten prices to curb inflation. The move that would shave profits from the country’s commodity titans. The CSI 300 Index, which tracks 300 stocks traded in Shanghai and Shenzhen, fell 1 percent to close at 3,512.14, the lowest since April 23, Bloomberg reported.

• The U.S. government announced yesterday (Thursday), via the Department of Justice, that it is suing Honeywell International Inc. (HON) for selling material used in bulletproof vests that it alleges was defective, The Associated Press reported. According to the DOJ, Honeywell had scientific data that showed the ballistic material, known as Zylon, “degraded quickly over time, especially in hot and humid conditions,” leaving the vests unfit for use. The department also alleges that Honeywell failed to notify the government or the vest manufacturer, Armor Holdings Inc., of the defect.

• E.I. Du Pont De Nemours & Co. (DD), commonly known as DuPont, said yesterday (Thursday) that it is targeting a 40% increase in soybean and corn yields over the next 10 years through its Pioneer Hi-Bred unit, according to Thomson Financial. The company expects DuPont Agriculture & Nutrition segment sales to grow by 6% to 8% and earnings by more than 15% on average between 2007 and 2010.

• Swiss pharmaceutical maker Novartis AG (ADR: NVS) spent nearly $1.3 million lobbying the U.S. government in the first quarter on drug and health care issues, according to a recent disclosure form, The Associated Press reported. Novartis lobbied on bills designed to ensure the government has a sufficient stockpile of influenza vaccine in case of an outbreak.

Source: Global Investing Roundups: Friday, June 6th, 2008

Continental’s management ended months of speculation by announcing that a merger with troubled United would do more harm than good, even with the intense pressure airlines are under due to record high oil prices and the competitive threat posed by the recent deal between Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA).

“The risks of a merger at this time outweigh the potential rewards,” Chief Executive Officer Larry Kellner said in a letter. “While some would prefer to see Continental pursue a merger, we strongly believe we have made the right decision.”

As for the niche carrier Eos, in grounding itself it joins Skybus Airlines, Aloha Airgroup Inc.’s Aloha Airlines and ATA Airlines Inc., which have already ceased operations, as well as U.S. charter operator Champion Airlines, which announced plans to stop flying at the end of May.

Frontier Airlines Holdings Inc. (FRNT) also has filed for bankruptcy protection, but at this time plans to keep flying.

The Eos downfall was “no surprise,” Calyon Securities airline analyst Ray Neidl told The Associated Press. “We saw it happen with other smaller, undercapitalized airlines. Basically, there are too many airlines. We’re in a period of consolidation. The weaker guys, [facing] $120-a-barrel oil, are finally succumbing.”

With jet fuel the single largest expense for carriers, merging to capitalize on economies of scale makes sense. And as the world’s new largest carrier, the Delta/Northwest merger now has the competitive advantage.

But while Continental still might be able to go it alone – even against a stronger potential rival – United is in a much weaker financial position and needs a partner. The carrier wasted no time in turning its attentions to U.S. Airways Group Inc. (LCC).

“Consolidation is under way – ensuring you have the right partner is everything,” United Airlines Chief Executive Glenn Tilton said in a statement. “We will pursue all options to ensure a strong, sustainable future for our airline.”

While talks with U.S. Airways are not yet at the advanced stage United had reached with Continental, management is doing its best to accelerate discussions, hoping to finalize any deal before the end of the year – and before there’s a possible change in the political party in the White House.

When it comes to mega-mergers – and industry consolidations in which there might be a perceived decline in competition – the Bush administration is seen as being more of a proponent for deals that require Justice Department approval in order to proceed.

Analysts say that U.S. Airways and United could mesh well due to similar pay structures and complementary fleets. In addition, United and U.S. Airways are both members of the Star global marketing alliance.

Bigger is Better

Atlanta-based Delta announced it would buy the Eagan, Minn.-based Northwest for $3.63 billion, all in stock, creating a single carrier with a combined enterprise value of $17.7 billion.

Delta Chief Executive Richard Anderson will be chief executive officer of the combined company. Delta Chairman Daniel A. Carp will become chairman of the new Board of Directors.

The carriers decided to go ahead with a merger despite being their respective pilot’s unions being unable to come to agreement. Delta’s 7,000 pilots endorsed the deal by supporting a new labor agreement that includes an equity stake.

While Northwest’s 5,000 pilots will be asked to join a contract before the deal closes, the union is expected to oppose deal after the unions could not agree on how to assign pilot seniority – a key determinant of shifts, pay scale and what airplanes they fly – in the new organization.

It is expected that the Delta/Northwest merger will be approved later this year.

The troubled airline industry has been beset by a host of problems on all sides as rising oil prices and a weakening U.S. economy have combined to take a big bite out of the carriers’ bottom lines. At the same time, efforts to increase cost efficiencies through mergers have been blocked by labor unions.

Airlines looked like they were battling back from a five-year slump following the 9/11 terrorist attacks, a period in which carriers rolled up $35 billion in losses. But while demand for air travel remains high, passenger satisfaction is at a historic low. Operational performance, which includes everything from on-time arrival to lost luggage, is at its lowest point in 20 years, according to the latest Airline Quality Rating study. “With the U.S. airline industry at rock-bottom in terms of overall performance, greater accountability is necessary,” said Brent Bowen, a researcher on the study who’s with the University of Nebraska at Omaha.

Airlines are searching for ways to cut costs without adding to the already unpopular passenger charges and fees, especially as consumer spending wanes. Fuel is the biggest expense category for airlines, and with oil north of $100 a barrel and heading higher, consolidating to capitalize on economies of scale seems to make sense.

Although a number of deals have been proposed, none have really been able to get off the ground.

Stalled U.S. Airline Merger

Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA) have been in merger talks for months now. Several important issues have already been decided. The combined carrier will fly under the Delta name and will be based in Delta’s home city of Atlanta.

Delta Chief Executive Officer Richard H. Anderson will remain on as head. But the stumbling block in a deal that would create the largest domestic carrier is the endorsement of the pilots.

In the past, airlines have had the pilots hammer out a deal after a contract has been signed. But hoping to have a fully functional combined airline that much sooner, Delta and Northwest encouraged their pilots to negotiate as soon as the planned merger was announced.

Unfortunately, the extra time hasn’t helped. The two unions have been unable to come to an agreement on seniority, which affects pay as well as route selection and the types of aircraft flown for the 12,000 pilots involved in the merger.

Without an agreement, the two unions have refused to endorse the merger.

Labor union support is critical to any merger, as Delta’s pilots’ union was instrumental in derailing a hostile bid takeover by U.S. Airways Group Inc. (LCC). But without the merger, Delta and Northwest will be forced to implement other cost-saving measures, including raising fees and cutting jobs.

UAL Corp.’s (UAUA) United Airlines and Continental Airlines Inc. (CAL) had also started merger talks earlier this year, but negotiations are on pause as the two airlines are waiting to see what happens with Delta and Northwest, a source with knowledge of the matter told Reuters.

European Merger Woes

Meanwhile, across the pond, Franco-Dutch carrier Air France-KLM (OTC: AFLYY) is facing similar labor opposition to its buyout of Italian carrier Alitalia – Linee Aeree Italiane S.p A.

Alitalia recently suspended trading of its shares and is estimated to be losing almost $1.5 million (the equivalent of 1.0 million euro) a day. The struggling carrier desperately needs the merger to go through in order to survive. Without a much-needed capital infusion from Air France-KLM, the carrier will undoubtedly have to file for bankruptcy protection.

But unions failed to approve the Air France-KLM bid, which included a 10% staff reduction, a $1 billion capital infusion and an all-stock bid that valued Alitalia at $217.7 million (138 million euros).

Air France-KLM said on Monday this was “the only plan able to allow Alitalia to return to health swiftly,” Reuters reported.

The Italian government is eager to divest its share of the financially unsound airline and Economy Minister Tommaso Padoa-Schioppa, the driving force behind the sale, has said unions must make a move fast or risk having the government appoint a special administrator to take over the negotiations.

With Italy’s elections looming on April 13 and 14, the government is eager to find a favorable solution.