Wondering About the World

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In April 1996 I recall watching

Dan Dorfman

(hey, you have to admit, he was always good for pure entertainment value) tout the laurels of

World Airways

(WLDA)

stock on

CNBC

. It was a sure thing. The stock was going to rise to astronomical heights in no short order. Dorfman, as he was wont to do, appeared absolutely enraptured with the company's future.

Well, the stock was trading at around 7 and change that day. No thanks to Dan (you almost have to admit you miss him), the stock rose as high as 11 1/4 that week. But, except for the week earnings were announced last October, the stock has been relatively stagnant. On Wednesday, shares closed at 8 7/16.

But wait! Didn't

Alex. Brown

issue a glowing research note on the carrier in August and set a target price of 16? Yep. Didn't World Airways just float a $50 million debt offering? Yep. Great -- that means they have cash. Oops. Big problem. Parent company

WorldCorp

(WOA)

is wallowing in red ink. They could use some of that cash.

No problem. World Airways will just buy back 3.7 million shares from the parent company. See how this works? Parent company gets cash, and World Airways has $30 million left over.

Life is great. Leverage is better.

Well, maybe not.

I'm not too enthusiastic about the upside right now on this stock for a number of reasons, the biggest of which is management. WorldCorp is a mess. The company is losing money hand over fist, and just lost its CEO and CFO. (The CFO was also the CFO for World Airways.) Then again, the CEO position at World Airways has also been a revolving door.

World is a "wet-lease" or ACMI carrier, not unlike

Atlas Air

(ATLS)

. (ACMI means that World provides the aircraft, crew, maintenance and insurance.) However, unlike Atlas, World leases its planes for both cargo and people. But a carrier like this lives and dies on the strength of its scheduling, marketing and financial management. As a result, this continual management upheaval, in my mind, has to affect the company's performance.

Secondly, I am concerned about the ongoing relationship with World and its customers. Many of World's contracts expire at the end of 1997. The company has few long-term leases. In addition,

Philippine Airlines

, which provided 36% of the company's revenue for the first six months of this year, is having financial difficulties. The carrier is now paying rent on a month-to-month basis, and World has reassigned two aircraft from Philippine Airlines to

VASP

(Viacao Aereo Sao Paulo), but there is no guarantee that Philippine Airlines will pick up the contract, which expires in February. And while World touted an extension of a one-year contract with the

U.S. Air Force

in August, existing Air Force contracts only accounted for roughly 15% of revenue for the first six months of 1997.

Lastly, even though block hours are up year-over-year for the carrier (ACMI carriers charge customers by flat-rate hourly charges), we would expect this to be the case, because World disbanded its regularly scheduled service in 1996. The ACMI business is now the only game in town. And frankly, a 12% increase in block hours for the first nine months of this year is nothing to jump up and down about.

But I am mainly concerned about the mix of contracts for 1998. These contracts should be in the pipeline now, not two months from now. Interesting that the company just announced the hiring of a new marketing maven this past week.

Perhaps this is a sign they know the same thing.

Wing Tips Notebook

Kitty Hawk

(KTTY)

, our cargo

highflyer, announced earnings that were above expectations Wednesday, which was good. The company then announced, after the close of the bell, that its merger with

Kalitta Cos.

was on the rocks. Not so good. Kitty Hawk had the right to terminate the merger. The company offered no other information.

Biggest bombshell of the week has to be the collapse of

Boeing

(BA) - Get Report

stock. The company rocked Wall Street Wednesday when it announced it would report a loss for the quarter on Friday. The stock dropped 7.6% to 49 7/8 on almost six times its normal volume. Problem? Too much business. Increasing backlogs. Increasing cost overruns. The

Federal Aviation Administration

also announced it was stepping up monitoring of the company. Feds are concerned with quality control problems because of the increasing production pressures.

And yes, while I did miss this last week of wild and crazy upticks, I am still quite content with my decision

last week to don the Ratty Old Bear Suit. This was a longer-term decision dontcha know. Thankyouverymuch.

Holly Hegeman, based in Dallas, pilots the Wing Tips column every Thursday for TheStreet.com. You can usually find Holly, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. Holly welcomes your feedback at

hhegeman@planebusiness.com.