<BREAKFAST WITH THE FOOL>

Tuesday, February 16, 1999

"It was not so long ago that people thought that semiconductors were part-time orchestra leaders and microchips were very, very small snack foods." -- Geraldine Ferraro

Latest Market Numbers

Judge Slams AA's Pilots

AMR Corp.'s (NYSE: AMR) American Airlines said it expects business as (almost) usual today as it plans to resume flying nearly all of its 2,250 scheduled flights. The nation's second largest airline canceled some 300 flights yesterday compared with 1,100, or roughly half of its flights, three days ago. According to American, the number of pilots on the sick list was down to 900 from a peak of 2,400 Friday -- the pilots' union had quite a different view, saying that about 400 pilots called in sick yesterday, or close to normal.

It's not surprising that union officials are trying to massage the numbers to show belated compliance to a judge's ruling that the sick-out was illegal and that the pilots must return to work. On Saturday, U.S. District Court Judge Joe Kendall slammed the union by finding it in contempt of court for ignoring his earlier order to end the sick-out. Kendall said the union and its leaders would have to reimburse American for losses incurred from the sick-out and ordered the union pay a $10 million deposit with the federal court by 1 p.m. Eastern time today. A hearing is scheduled for tomorrow to set the actual fines.

In surprisingly and refreshingly blunt language, the judge said, "Unfortunately, the radical element that appears to be in control of the Allied Pilots Association seems determined to fly American Airlines into the side of the mountain, taking themselves, the company, their co-workers and their customers with them." He went on to denounce the pilots' union as extortionists engaged in negotiations "one usually sees when doing business with one of the [Mafia] families in New York." And here's the best part: Kendall warned that unless the union quickly ended the illegal sick-out, "all the assets of the union, including their strike war chest, will be capable of being safely stored in the overhead bin of a Piper Cub." (That's a small single-engine aircraft.)

What's all the fuss about? The pilots' union is demanding that American immediately integrate pilots from recently acquired Reno Air into its pay scales, thus raising the pay for American pilots who will qualify for promotions as a result of the integration. The union wants to keep the airline from using Reno pilots as substitutes for the much higher paid American pilots. Reno pilots make around $75,000 a year on average -- about half what American pilots make. In fact, the union's top two officials, the president and the vice president, actually make $269,000 and $220,000 a year. It's not surprising that Judge Kendall and stranded airline passengers were less than sympathetic to their "cause."

News to Go

Discount retailing giant Wal-Mart (NYSE: WMT) this morning reported fourth quarter earnings of $0.70 a share, up 23% from $0.57 last year. Analysts were predicting EPS of $0.67. Sales totaled $40.785 billion, a 15% gain year over year. Same-store sales jumped 8.7% during the quarter, representing an 8.2% rise for Wal-Mart stores and a 10.3% gain for the Sam's Club division.

Earnings to watch today... Dell Computer (Nasdaq: DELL) will report fiscal fourth quarter earnings today after the close. Analysts project EPS of $0.31 compared with last year's split-adjusted $0.20... Hewlett-Packard (NYSE: HWP) is expected to turn in after the close fiscal first quarter earnings of $0.83 a share, the mean estimate according to First Call. That would be down from $0.86 a year ago.

Diversified manufacturer, financial services giant, and NBC parent General Electric (NYSE: GE) won a $1.74 billion contract with the Defense Department to provide spare parts for certain military engines through 2012. The company was the sole bidder for the fixed-priced contract.

Gifts and gadgets retailer Sharper Image (Nasdaq: SHRP) reported fiscal Q4 EPS of $1.00, up from $0.67 last year and in line with estimates. The earnings growth was driven by record sales and a 4 percentage point increase in its gross margin. The company's chairman and CEO said it plans to "aggressively" expand its Internet presence this year, adding that it will launch its new auction site February 22.

Dallas-based hotel real estate investment trust Patriot American Hospitality (NYSE: PAH) is expected to announce a decision to negotiate exclusively with an investor group led by Apollo Real Estate Advisors, The Wall Street Journal reported. This would mean that liquidity-challenged Patriot is opting for Apollo's offer to pay $1 billion for convertible preferred stock over a competing offer from Hilton Hotels Corp. (NYSE: HLT), which has proposed buying $934 million worth of Patriot hotels while investing $350 million in Patriot.

Sweden's Volvo AB (Nasdaq: VOLVY), the world's second largest heavy-truck maker, is reportedly considering acquiring Navistar International (NYSE: NAV), the fourth biggest truck maker, according to The Financial Times. The acquisition would double Volvo's share of the North American market. Navistar reported fiscal Q1 earnings late last week.

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Yi-Hsin Chang (TMF Puck), Writer
Jennifer Silber (TMF Amused), Editor