Friday PM August 29th, 2008

Oil industry, wireless carriers brace for Hurricane Gustav…Personal incomes plunge in July; consumer spending slows…European Commission opens antitrust probe into deal between British Airways, American Airlines and Spanish airline Iberia…

The petroleum industry has spent vast amounts of time and money since the catastrophic hurricanes of 2005 trying to make sure offshore drilling rigs and production platforms are better prepared for the next big blow. It’s put in stronger moorings for production platforms, deeper pipelines, larger supplies of backup electricity, water and other supplies. Now, that “next big blow” could be named Gustav. The deadly storm appears headed for the northern Gulf of Mexico, home to a complex web of platforms, pipelines and refineries in a region that produces roughly 25 percent of the nation’s oil and 15 percent of its natural gas. Projections show Hurricane Gustav arriving early next week as a Category 3 storm, striking anywhere from the Florida panhandle to southeast Texas. Three years ago, as they prepared to fix the Gulf’s devastated oil and gas facilities, industry representatives realized standard repairs weren’t enough. So the companies that own the platforms, drill the wells and manage the pipelines spent hundreds of millions of dollars to improve and strengthen their operations. Still, as Gustav churns, a question lingers: how will the revamped structures, pipelines and other equipment hold up to a major hurricane?

The hurricane bearing down on the Gulf Coast could be a test for the country’s wireless carriers. Those carriers faced criticism and a regulatory push after Hurricane Katrina took out networks. Dallas-based AT&T is the main landline phone company in the region and the country’s largest wireless carrier. It’s also added capacity, among a raft of preparations and upgrades to its Gulf Coast infrastructure over several years. It has replaced some cables that are vulnerable to flooding with waterproof ones. Optical fiber has replaced copper wiring, which can short out when wet. In the past year, Verizon Wireless has spent $137 million to enhance its Gulf Coast network. That includes doubling its capacity at regional switching centers to handle a barrage of calls when disaster strikes. Gustav could hit the coast at the beginning of next week as a major hurricane. If so, wireless networks would have two main vulnerabilities. The cell towers may be unhurt by the buffeting winds of a hurricane. But to keep working, each needs electrical power and a connection to the larger network, usually via landline.

Personal incomes plunged in July while consumer spending slowed significantly as the impact of billions of dollars in government rebate checks began to wane. The Commerce Department says personal incomes fell by 0.7 per cent in July, the biggest drop in nearly three years and a far larger decline than the 0.1 per cent decrease analysts expected. Consumer spending edged up a modest 0.2 per cent, in line with expectations, but far below June’s 0.6 per cent rise. When the impact of rising prices was factored in, spending actually dropped by 0.4 per cent in July, the weakest showing for inflation-adjusted spending in more than four years.

Retail gasoline prices continue to drop across Texas this week. The weekly AAA Texas gas price survey finds regular-grade averaging $3.47 per gallon across Texas, down seven cents from last week. Auto club spokesman Dan Ronan says the price was falling even as Labor Day approaches and tropical storm Gustav threatens to reach hurricane levels in the Gulf of Mexico. The cheapest gas in this week’s survey is in Houston, where it fell nine cents to $3.39 per gallon. El Paso has the most expensive gas at $3.60 per gallon, still down a nickel from last week.


is projecting a slight decrease in the number of Americans traveling this holiday weekend. It projects more than 34 million people will travel 50 miles or more from home, down less than one percent from those who traveled last Labor Day weekend. AAA says more than 83 percent of holiday travelers will going by car, and will of course be facing much steeper gas prices from a year ago. AAA says the average gallon of gas nationwide runs about $3.66. That compares to $2.76 a year ago.


The European Commission has opened an antitrust probe into a revenue-sharing deal between British Airways, American Airlines and the Spanish airline Iberia. If approved, the three airlines will set prices together and share seat capacity on trans-Atlantic flights. EU spokesman Jonathan Todd said the investigation had been opened by European Union regulators under their own initiative and didn’t result from any complaints filed from the airlines’ competitors. If approved by antitrust regulators, the three airlines will set prices together and share seat capacity on trans-Atlantic flights. Fort Worth-based American and its two prospective partners hope for worldwide antitrust immunity for their deal. The pact is the closest alliance the trio can form under strict U.S. airline ownership laws that all but rule out a full merger. It follows two earlier failed attempts by BA and AMR Corporation’s American to forge closer ties. Rival carrier Virgin Atlantic Airways claims the deal will seriously damage the competitiveness of the lucrative trans-Atlantic route and increase fares for passengers.

Italy’s national airline Alitalia says it has filed for bankruptcy protection, taking the first step in reshaping what has been a failing company. Alitalia said that its board had asked the government to appoint an administrator and had declared insolvency to a Rome court. The airline has been losing almost $3 million a day–hurt by labor unrest, competition from budget airlines and high fuel prices. Its shares have been suspended from trading since June.

General Motors is recalling 944,000 vehicles because of a problem with the windshield wiper fluid system that could lead to a fire. The recall involves more than 850,000 sport utility vehicles, trucks and passenger cars in the U.S. and nearly 100,000 vehicles in Canada, Mexico and the Middle East. It involves the 2008 Buick Enclave, 2006-2008 Buick Lucerne, 2006-2008 Cadillac DTS, versions of the 2007-2008 Cadillac Escalade, 2007-2008 Chevrolet Avalanche, Silverado, Tahoe and Suburban, 2007-2008 GMC Acadia, Sierra, Yukon and Yukon XL, 2006-2008 Hummer H2 and 2007-2008 Saturn Outlook. The recall involves vehicles with a heated washer fluid system. A short circuit in the system could cause electrical features to malfunction. There have been nine reports of fires, but no accidents or injuries.

Conagra Foods now uses recycled plastic in the trays for its frozen meals, and the company says that should keep about eight million pounds of plastic out of landfills each year. Nearly all the trays Conagra uses in its Healthy Choice, Banquet and Kid Cuisine meals now include 30 to 40 percent recycled plastic. The Omaha-based company says less energy will be used to produce the new trays. Conagra worked with Associated Packaging Technologies to design the trays. A new process that cleans recycled plastic before it is used in the meal trays was needed, so the new trays could meet government standards for materials that come in direct contact with food.

If you’re getting hitched in Texas, get ready to face a stiffer marriage license fee. The fee for one goes up from $30 to $60 starting Monday. Couples can avoid most of that cost and the state’s 72-hour marriage waiting period by completing a free eight-hour course. It teaches how to communicate better and how to resolve arguments. The marriage law is one of several passed by the legislature last year taking effect this September. Among other new laws are ones that eliminate an outdated telecommunications infrastructure tax and clarify rules for car dealer ownership. The marriage course law was the subject of much debate at the capitol. Representative Warren Chisum pushed the law, saying he wanted to try to reduce the number of divorces. Opponents worried an expensive marriage fee would in effect make the courses mandatory for couples who couldn’t afford the license.

Liverpool’s plan to replace its Anfield soccer pitch with a new stadium has been delayed again. Liverpool previously said the stadium, to be built near Anfield in Stanley Park, would open for the 2011-12 season. No new timetable was given. A team statement says the project was “affected by global market conditions, and as such work on the project will be delayed in the short term.” The announcement likely will increase speculation that co-owners Tom Hicks of Dallas and George Gillett, Jr., of Vail, Colorado, might be having cash-flow problems. The two bought the team in March 2007. The Liverpool City Council granted permission on June 19th for a 60,000-seat stadium, which is expected to cost more than 730 million. Preliminary work began five days later. Now, the club says it’ll propose increasing capacity to 73,000 seats. Anfield, which opened in 1884 and has been extensively rebuilt, seats about 45,300.


Slashing computer prices helped Dell boost sales in its fiscal second quarter. But the Round Rock-based number two PC maker’s bottom line took a hit when efforts to cut costs failed to make up the difference. Dell’s quarterly sales rose 11 per cent to 16.4 billion, beating Wall Street’s view, and Dell said operating expenses fell to their lowest point in six quarters. But for the three months ended August 1st, Dell’s profit plunged 17 percent to $616 million. In a conference call, founder and CEO Michael Dell acknowledged that Dell may have been overzealous in cutting prices to challenge its top competitor Hewlett-Packard in Europe, the Middle East and Africa.

The personal investment fund of computer maker Michael Dell is buying stock in troubled Tulsa-based Semgroup Energy Partners. The company is dealing with a credit default and the bankruptcy of its parent company Semgroup. Dell’s MSD Capital has bought 123,200 shares of Semgroup Energy common stock and is taking on exposure to more than 519,000 more shares. The investment fund now owns nearly 2.3 million shares of Semgroup Energy stock giving Dell more than ten per cent ownership of the company.