After Panama's ties with Venezuela broke, the tension spilled
Copa Holdings SA
) subsidiary and prominent air carrier - Copa Airlines. Copa
Holdings, which has strategic partnership with
United Continental Holdings Inc.
), registered a steep fall in share price, ending 7.69% down on
Thursday trade on NYSE.
The stock got dumped by shareholders after news surfaced that
Venezuela has cut off all diplomatic and political relations as
well as frozen all trade and economic ties with Panama. To date,
Copa Holdings has declined 26.3% since the beginning of Jan 2014.
Avianca Holdings SA
), a competitor of Copa, which operates flights in both nations
also ended the day in red with a 2% in decline.
Venezuelan President Nicolas Maduro accused the Panamanian
government of conspiring to bring down the present government.
Panama has been accused of joining close ally - the present U.S.
government - to topple the Venezuelan government by enforcing OAS
(Organization of American States) intervention in domestic
Maduro's Panamanian counterpart Ricardo Martinelli denied all
accusations and replied that it is in favor of OAS intervention
to restore peace in the country, which has been facing
anti-government protests since last month.
Three U.S. diplomats were expelled last month from Venezuela
for conspiring against the country. Earlier, the U.S. had
declared Venezuela's accusations against it as a means to
distract people from its own undoing.
Stopping of trade ties is not a good sign for Copa Airlines,
which along with Copa Colombia provides domestic and
international services to different Latin American countries
including Venezuela. According to Bloomberg, Panama's flag
carrier has $487 million trapped in Venezuelan Bolivars and is
non-transferable under the current political turmoil.
For a company like Copa Airlines, this is quite some money as
it represents around 19% of its 2013 operating revenue. However,
the good news is that Copa Airlines management has announced that
its flight to Venezuela is still operational.
We believe the controversy between the two countries can
affect Copa Airline's performance and the quicker the dispute is
resolved the better it will be for the Panama City based carrier.
We thus remain cautious on the stock with a Zacks Rank #3 (Hold).
Meanwhile, investors can consider better-ranked stocks like
Southwest Airlines Co.
). Currently, Southwest Airlines sports a Zacks Rank #1 (Strong
AVIANCA HOLDNGS (AVH): Free Stock Analysis
COPA HLDGS SA-A (CPA): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
UNITED CONT HLD (UAL): Free Stock Analysis
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