EDS Grounded Too?

Man, have the skies turned unfriendly. In the last three weeks alone we've heard that United and Delta (NYSE: DAL  ) may fire as many as 13,000 workers, US Airways (Nasdaq: UAIRQ  ) has gone broke again, Continental (NYSE: CAL  ) is canceling pension payments, and major carriers are lining up to hike ticket fees.

Add another casualty to the list, only this one -- wait for it -- is a landlubber. Thursday, services firm EDS (NYSE: EDS  ) said the bankruptcy filing by US Airways could cut earnings by more than one-third, or $0.03, in the third quarter that ends this month. Wall Street estimates had EDS earning $0.08.

EDS reported in a filing with the Securities and Exchange Commission that US Airways had an unpaid bill of more than $27 million at the time of its bankruptcy filing. That doesn't include more than $16 million in other assets such as equipment related to its work with the airline. EDS has not said how much it will set aside to cover bad debt from the US Airways contract, but investors should expect the charge to be close to what it is owed.

Will there be more collateral damage from the airline industry meltdown? That's hard to predict, but it's worth noting that EDS hasn't exactly been flying at cruising altitude recently. According to published reports, the services giant could let go as many as 20,000 workers in an effort to cut expenses by 20% before 2006. And in July, the firm cut its dividend and had its credit rating reduced to junk status. With a record like that, yesterday's news could indicate nothing more than poor management.

Still, Foolish caution probably demands investors take a peek to see whether their holdings include a major airline creditor. After all, the storm clouds over the industry aren't likely to clear anytime soon.

For more Fool coverage of airlines:

  • Believe it or not, there is good news among smaller airlines: Hawaiian Holdings (AMEX: HA  ) , parent of Hawaiian Airlines, will soon make your vacation hassle-free; and World Airways' (Nasdaq: WLDA  ) billion-dollar tease can't disguise the fact that the stock may be a bargain.
  • Radical change appears to be the only way to save the major carriers. As it is, several big airlines could still fail.
  • The parade of storms through the southeastern U.S. just might mean it's time to buy Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU  ) .

Does investing in fly-by-night industries feel a little to you like skydiving without a parachute? Us too. But you don't have to take on extra risk to earn big investment returns. Each month,Motley Fool Inside Valuechief analyst Philip Durell shows you how to win big while shopping in the bargain bin. You can get in on the action by taking a 30-day free trial.

Fool contributor Tim Beyers has no ownership interest in any of the companies mentioned, but he has family members who are retired from United Airlines. You can view Tim's Fool profile here.


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