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MARCH 5, 2007
Edited by Harry Maurer Red-Faced JetBlue What a difference an ice storm can make. JetBlue Airways (JBLU ), which pledges to "bring humanity back to air travel," suffered a frigid blast to its customer-friendly reputation after Valentine's Day foul weather left hundreds of passengers stranded on runways at New York's Kennedy Airport for up to 10 1/2 hours. That alone would have made for corporate chills. But the storm, which caused JetBlue to cancel 279 flights on Feb. 14, also overwhelmed operations on Presidents' Day weekend, leading to a six-day saga of more than 1,100 cancelled flights. After CEO David Neeleman's highly public mea culpas, the airline introduced a Customer Bill of Rights, promising passengers vouchers or refunds for delays or cancellations. On Feb. 21 the carrier said it would post an operating loss in the first quarter, partly owing to $30 million in storm-related expenses, and cut its operating-margin forecast for the year. See "JetBlue's Fiasco Could Improve Flying" Radio Romance After months of rumors crackling over the airwaves, Sirius Satellite Radio (SIRI ) and XM Satellite Radio (XMSR ) announced plans to merge on Feb. 19, striking a $13 billion deal—and facing high regulatory hurdles. See "Satellite Static: The XM-Sirius Merger"   A Breath Of Inflation Don't get sick, and don't smoke—it'll cost you. The Bureau of Labor Statistics announced on Feb. 21 that medical costs rose 0.8% in January, for the biggest leap since 1990, while tobacco products jumped 3.1%. Those items caused the "core" consumer price index to rise a more-than-expected 0.3%. The "headline" cpi, including food and energy, rose 0.2%. Bond prices fell as traders concluded that the Fed was less likely to cut rates. Airbus Divided The troubled planemaker's restructuring plan is caught in a political downdraft. France and Germany are squabbling over who'll shoulder the brunt of a $6.5 billion, three-year cost-cutting program that's likely to entail 10,000 job losses. The flareup forced management to postpone a scheduled Feb. 20 unveiling of the plan. French President Jacques Chirac and German Chancellor Angela Merkel have scheduled talks for Feb. 23. Retailer Results Looks like former CEO Bob Nardelli got out just in time: Home Depot (HD ) on Feb. 20 reported rickety fourth-quarter numbers, with profits tumbling 28% and same-store sales down 6.6%, the first such slip in the company's history. Another behemoth, Wal-Mart (WMT ), fared better after going back to low-price basics: Profits up 10%, and same-store sales up 1.6% for the quarter. See "Wal-Mart Goes Abroad for Growth" Dell's New Team CEO Michael Dell, back in the Dell (DELL ) dugout since January, is signing heavy hitters. On Feb. 16 the sputtering computer giant named Ron Garriques, chief of Motorola's (MOT ) cellphone business, to head its global consumer division. That came two days after Dell hired turnaround ace Mike Cannon, CEO of electronics assembler Solectron (SLR ), to lead its manufacturing, procurement, and supply chain operations. Analysts expect Dell to continue the hiring drive, as many longtime managers have exited recently. See "Dell's New Blood: Cannon, Now Garriques" Warner Music Won't Quit Will the fourth verse be the charm? After three failed attempts at a merger with EMI, Warner Music (WMG ) again wants the two companies to waltz. On Feb. 20, Warner said it has discussed "a possible acquisition" after striking a deal with the Independent Music Publishers & Labels Assn. that it believes will help overcome European regulatory hostility. Among other things, it agreed to help finance the new Merlin initiative, which helps indie labels license music online. Warner didn't put a price tag on the potential takeover. It offered $4.9 billion for EMI last year. Merck Backs Off Merck (MRK ) was feeling poorly after reports emerged that it was aggressively lobbying state legislators to require that girls be vaccinated with Gardasil, which prevents HPV, a leading cause of cervical cancer. Pharma lobbying is nothing new, of course, but in this case Merck had been waging its campaign partly through Women in Government, an advocacy group it funds. That raised the hackles of some conservatives, who fear the vaccine may encourage promiscuity, since HPV is sexually transmitted. On the advice of medical associations that think it's too early to mandate the vaccine, Merck pulled the plug on its state lobbying efforts on Feb. 20, saying it will focus instead on educating women about the importance of preventing HPV. Analysts figure Gardasil could rack up sales of $2 billion to $4 billion a year—the higher number more likely with mandates. Viacom Goes Elsewhere A week after blasting YouTube for streaming shows without compensation, Viacom (VIA ) on Feb. 20 became the first large Hollywood player to sign with a new video site, Joost. Operated by Yvette Alberdingkthijm and Janus Friis, the Scandinavian entrepreneurs behind the Skype online telephone service, Joost says it can provide a "secure, efficient, piracy-proof" outlet for TV shows from Viacom's MTV, BET, and Paramount Pictures units. At the outset, the content will be free. Viacom and other media outfits are still negotiating with YouTube owner Google (GOOG ) to license their content to the site. See "Viacom Juices Joost" BBVA Bulks Up Big Spanish banks have long been powerhouses in Latin America. Now they're flexing more muscle north of the border. Banco Bilbao Vizcaya Argentaria (BBV ) said on Feb. 16 that it will acquire Compass Bancshares, based in Birmingham, Ala., for $9.6 billion in cash and shares. Along with bbva's existing U.S. holdings, that gives the Spanish bank 622 branches in Sunbelt states such as Alabama, Arizona, New Mexico, and Texas. Ruling Of The Week Chalk up a big one for business and another kick in the briefs for plaintiffs' lawyers. On Feb. 20 the Supreme Court sided with Philip Morris (MO ), maker of Marlboro cigarettes, in its appeal of a $79.5 million punitive damages award. The court ruled 5 to 4 that the award in the case, brought by the widow of longtime smoker, Jesse Williams, was unfair because it sought to whack the company for wrongs beyond those suffered by Williams. During a 1999 trial, the widow's lawyer had urged the jury to consider the harm Philip Morris had inflicted on countless other smokers over the years. The justices did not, however, hand corporations what they most would have liked: a firm cap on how much a jury can dole out in such a case. In its 2003 State Farm decision, the court said punitive damages should be limited to a modest, though undefined, multiple of compensatory damages. In this case, the jury awarded a multiple of 97. The Williams matter now heads back to Oregon for review.
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