Tax Change Hits Earnings Hard

In an announcement likely to further fuel speculation of an impending merger, on Wednesday Continental Airlines announced it posted a larger fourth-quarter loss in 2007 than for the year before, due largely to an increase in its deferred tax asset valuation allowance.

Reuters reports Continental posted a Q4 2007 net loss of $32 million, which amounts to 33 cents per share. That compares unfavorably to a same-period loss of $26 million in 2006.

In addition to the one-two punch of record oil prices and a slumping economy, Continental's Q4 numbers were also hit by a non-cash charge of $104 million, due to the chance in the tax allowance.

The general downward trend in airline earnings has prompted several US carriers to consider mergers. In addition to ongoing talk of a looming merger between Delta Air Lines and Northwest Airlines, Houston-based Continental is also rumored to be in discussions with United Airlines.

Continental has said often it would prefer to remain independent... but analysts say that may not be a realistic scenario.

FMI: www.continental.com