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U.S. Shutdown Delays Airline Delivery

LUV BA JBLU

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The troubles of the U.S. government partial shutdown have started to spread to the U.S. airline industry, with passenger carries facing delayed delivery of aircraft from Europe due to the closure of Federal Aviation Administration (FAA). Nevertheless, stock prices of the airlines are so far indifferent to the setback.

The U.S. government shut down operations after almost 17 years after the Democrats rejected the Republican demand to delay Obamacare by a year and other alterations to pass the emergency funding bill. The shutdown has affected 800,000 domestic federal workers, in particular those employed in National museums, parks and other civil attractions.

In the airline sector, budget carrier JetBlue Airways Corp. (JBLU - Analyst Report) was the first victim of the shutdown as the delivery of its Airbus A-321’s got delayed. Another major U.S. carrier, U.S. Airways Group Inc. , also returned empty handed from Europe for the FAA closure. All U.S. aircraft must be registered with the national aviation authority before flying but FAA employees are presently on leave due to the government shutdown.

JetBlue narrowly avoided a shutdown-related delay and took the delivery of an A-320 from Toulouse, France the manufacturing base of Airbus. The delayed A-321’s of JetBlue were apparently scheduled for service in Dec 2013. The delay could hit hard the company’s newly launched premium service, Mint, which was supposed to use the wide-bodied A-321s.

The Boeing Co. (BA - Analyst Report), being an FAA organization designation authorization (ODA) holder, continues to certify aircraft, as it has the authority to perform certain certification on behalf of FAA. However, the Chicago-based company has warned that the partial shutdown could impact the anticipated delivery of some of its 787-8 Dreamliners. This means that Southwest Airline Co. (LUV - Analyst Report) could be impacted as this discount carrier is expected to receive several of its new wide bodied jets in 2013.

Nevertheless, the shutdown has not affected airline service so far. However, we believe a prolonged shutdown could hurt the demand of other private companies that rely on government agencies. This would eventually affect the workers, which in turn could squeeze their liquidity, thus reducing travel demand.

Both JetBlue and U.S. Airways currently carry a Zacks Rank #3 (Hold).

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