For NWA, oil isn't as cheap as it could be

[Hatu]

Northwest Airlines Corp. seemed to be making a good call in July, when it locked in oil prices for the second half of the year to protect itself from spikes in oil.
After all, the Eagan-based airline had suffered mightily when prices skyrocketed in 2005; the rising costs of jet fuel was one of the factors that pushed Northwest (Pink Sheets: NWACQ - News) into Chapter 11 bankruptcy. So this summer, with analysts forecasting $100-per-barrel oil prices, the company used a hedge deal to lock in 25 percent of the oil it bought in the second half of 2006 at a maximum of $79 per barrel.
Except -- oil prices didn't keep going up. They went down by 20 percent, to just under $63 per barrel on Friday. That's beneath the $65 minimum price that Northwest agreed to pay in its hedge deal.

On the plus side, a Northwest spokesman noted ... Northwest is paying the lower market price for the 75 percent of its fuel purchases that aren't hedged.

http://biz.yahoo.com/bizj/060929/1354195.html?.v=1

LOLOLOL as opposed to the lower market price for 100% if they hadn't hedged at all!!!!! I thought the spokesman's comments had to be a spoof from the Onion.com!
I'm not saying that without hindsight locking in at a maximum of $79 a barrel was a bad idea. But boy o boy that spokesman wrote the book on the power of positive spin.

 

[Don Smith]

Typical nwa blunder :blink: . I wonder what consultant they hired that told them to lock in at $79 a barrel? I'll bet it was an internal decision. You can bet that if it was an outside firm that gave them bad data they would have crowed about it in the nwa controlled media in MSP.

 

[finman]

Typical nwa blunder :blink: . I wonder what consultant they hired that told them to lock in at $79 a barrel? I'll bet it was an internal decision. You can bet that if it was an outside firm that gave them bad data they would have crowed about it in the nwa controlled media in MSP.

Just for clarity, NWA locked in at $65-$79 via a collar option. Thus, if the price is between $65 and $79, we pay mrket price. If oil is below $65, we pay $65, and if oil is greater than $79, we pay $79. It still turned out to be bad decision, but it appeared clarity of what was actually purchased was needed.

 

[FWAAA]

I don't agree that it was a "bad" decision - it was a good decision that didn't turn out the way the execs had hoped. Even good decisions don't always turn out to yield the best financial results.

 

[groundcontrol]

I don't agree that it was a "bad" decision - it was a good decision that didn't turn out the way the execs had hoped. Even good decisions don't always turn out to yield the best financial results.

WHAT?????
Only a fool and his money.
Check that a fool and his our/their/your money.

 

[finman]

I don't agree that it was a "bad" decision - it was a good decision that didn't turn out the way the execs had hoped. Even good decisions don't always turn out to yield the best financial results.

It's a good decision if it works, and a bad decision if it doesn't. Airlines are not oil trading firms, and thus they are only taking part in the expense side of the hedging world. As such, the hedge of crude oil for airlines amounts to nothing more than a pure gamble. Naturally, the more risky the bet for the seller, the more expensive the hedge premium, and vice versa. NWA purchased a fairly low risk instrument in the $65-$79 collar.

 

[big jimmy]

It's a good decision if it works, and a bad decision if it doesn't. Airlines are not oil trading firms, and thus they are only taking part in the expense side of the hedging world. As such, the hedge of crude oil for airlines amounts to nothing more than a pure gamble. Naturally, the more risky the bet for the seller, the more expensive the hedge premium, and vice versa. NWA purchased a fairly low risk instrument in the $65-$79 collar.

What a dumb ass you are finny! This is how it always works. Republicans in trouble in the polls come election gas goes down. Republicans get elected gas goes up, democrats get elected gas goes down. Worked that way last 3 presidents. Watch what happens this fall. Boy you think these harvard grads could figure this out!

 

[finman]

What a dumb ass you are finny! This is how it always works. Republicans in trouble in the polls come election gas goes down. Republicans get elected gas goes up, democrats get elected gas goes down. Worked that way last 3 presidents. Watch what happens this fall. Boy you think these harvard grads could figure this out!

What are you talking about in relation to my post? Please explain where I am making a "dumb" comment in relation to my explanation of NWA's hedge position on fuel.

And please do enlighten me how "the Republicans" manipulate the either the supply or the demand for petroleum products, thereby making gas prices go up or down. If you're so brilliant, then I'm assuming you're putting all of your savings into shorting crude oil?

You might want to take the time to read bloomberg energy or some other related content to get an idea how the global energy commodity markets work, and what the true drivers of price fluctuations are. I'd hate to think that an adult that is allowed to vote would be as ill-informed on such an important issue as yourself.

 

[Don Smith]

It's a good decision if it works, and a bad decision if it doesn't. Airlines are not oil trading firms, and thus they are only taking part in the expense side of the hedging world. As such, the hedge of crude oil for airlines amounts to nothing more than a pure gamble. Naturally, the more risky the bet for the seller, the more expensive the hedge premium, and vice versa. NWA purchased a fairly low risk instrument in the $65-$79 collar.

I agree Beanie that "Airlines are not oil trading firms", but, when such a large expense of your company rests with the price of oil don't you think an outside advisor should be consulted? The reason (from the media) that the price has dropped is the saturation of the market with supplies. Don't you think someone would have seen figures supporting the glut? You're on the inside...who made this decision? :unsure:

 

[finman]

I agree Beanie that "Airlines are not oil trading firms", but, when such a large expense of your company rests with the price of oil don't you think an outside advisor should be consulted? The reason (from the media) that the price has dropped is the saturation of the market with supplies. Don't you think someone would have seen figures supporting the glut? You're on the inside...who made this decision? :unsure:

NWA has advisors, as well as seasoned energy traders working within the company in the fuel department. You have to remember that around the time these collars were purchased, there were a lot of "experts" predicting $100/bbl oil, due to the increased tensions in the middle east. Supplies have been very healthy for a very long time, but the geopolitical issues, along with the massive amount of speculative investing that has entered the market, makes the price point much more unpredictable in relation to supply. Remember, it's not necessarily the current supply that drives prices, but the expectation of supplies in the future as well. This is a glogal commodity market, and thus the price is always at the point that the market forces are currently dictating based on all of the information that exists that could impact supply and demand. Markets are very efficient, so no airline is going to be able to "beat" the market and hedge fuel prices profitably on a consistent basis.

As far as who made the final decision, I really don't know the answer to that. NWA executives have the final call on all decisions, so they are ultimately responsible for the implications of that decision.

 

[eolesen]

Weren't the perpetually bitter folk around here complaining about the lack of hedging not too long ago?... Sheesh. Damned if you do, damned if you don't.

 

[tech2101]

NWA has advisors, as well as seasoned energy traders working within the company in the fuel department.

One must wonder how good these 'seasoned energy traders' are if they must work for bankrupt NWA. A 'seasoned energy trader’ commands a hefty salary if they are good and have a proven track record.

NWA executives have the final call on all decisions, so they are ultimately responsible for the implications of that decision.

Now I agree with that statement. Too bad they will not be around when the far-reaching implications of some of the personnel actions take place.

 

[big jimmy]

What are you talking about in relation to my post? Please explain where I am making a "dumb" comment in relation to my explanation of NWA's hedge position on fuel.

And please do enlighten me how "the Republicans" manipulate the either the supply or the demand for petroleum products, thereby making gas prices go up or down. If you're so brilliant, then I'm assuming you're putting all of your savings into shorting crude oil?

You might want to take the time to read bloomberg energy or some other related content to get an idea how the global energy commodity markets work, and what the true drivers of price fluctuations are. I'd hate to think that an adult that is allowed to vote would be as ill-informed on such an important issue as yourself.

Well finny girl I happened to have invested heavy early on in this administration in such things as oil and defense. Did rather well, got out of oil a couple of months ago. Made lots of money on Hal and bailed. Lots of stuff figure into the price of oil. But 1 thing for sure is when a bush boy gets in the white house and the real president (Cheney) gets together with big oil behind closed doors and sets an energy policy it is not in the best interest of the American people. Don't have to like them to make money off them. Oh yeah I vote.

 

[finman]

Well finny girl I happened to have invested heavy early on in this administration in such things as oil and defense. Did rather well, got out of oil a couple of months ago. Made lots of money on Hal and bailed. Lots of stuff figure into the price of oil. But 1 thing for sure is when a bush boy gets in the white house and the real president (Cheney) gets together with big oil behind closed doors and sets an energy policy it is not in the best interest of the American people. Don't have to like them to make money off them. Oh yeah I vote.

What's with the "Finny girl" comment? I'm not sure I understand where your insults are coming from. Do you have a larger point to make here, or are you just so unsure of your opinions and knowledge that you need to preface your points with an insult to help you feel good about yourself?

I'm not going to get into a political discussion here, because it's pointless and misplaced. You've bought into the liberal talking points, and you apparently have no interest in digging deeper into the issues to see if they hold merit.

 

[big jimmy]

What's with the "Finny girl" comment? I'm not sure I understand where your insults are coming from. Do you have a larger point to make here, or are you just so unsure of your opinions and knowledge that you need to preface your points with an insult to help you feel good about yourself?

I'm not going to get into a political discussion here, because it's pointless and misplaced. You've bought into the liberal talking points, and you apparently have no interest in digging deeper into the issues to see if they hold merit.

Yeah a-hole my larger point was that nwa screws up again. With all their so called brain trust that worked this bankruptcy court (pay offs) so well, the only thing they seem to do well is screw their employees and the state of MN. Liberal talking points? You been listening to your crack head buddy limbaaahhh. What a joke!