Airline stocks: American Airlines hits eight-year low
Airline stocks fell Monday, led by bankruptcy speculation for troubled American Airlines. American shares tumbled 33 percent, while airline stocks generally dropped 9.8 percent.
American Airlines' stock plunged to an eight-year low on fears of a weaker economy — which hurt other airline shares — and speculation that the carrier would seek bankruptcy protection.Skip to next paragraph
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A combination of factors drove down shares Monday. Wall Street analysts suggested that American turn to the bankruptcy court to lower costs. Investors were also spooked by a report that showed a slowdown in air travel and cargo. Shareholders, in addition, weighed an announcement that more than ten times the normal number of pilots is retiring from American. That's a signal to some that pilots are fearful about the carrier's health.
Shares of AMR Corp., American's parent, tumbled 33 percent, closing at $1.98. Shares have not closed below $2 since March 2003. Trading of the Fort Worth, Texas-company was halted seven times Monday because of extreme volatility. Stocks for the entire U.S. airline industry fell 9.8 percent.
AMR's stock price has fallen 75 percent since the start of this year, while industry shares have dropped 41 percent.
Morningstar airline analyst Basili Alukos was among those advocating that American seek bankruptcy protection.
"For a long time, I've thought that the company has been at a disadvantage," Alukos said in an interview.
Alukos doubted that American can bring down its labor costs or high debt payments without going through bankruptcy court. American's competition has already gone through that process and reduced those costs.
American is the only major airline that has lost money this year — $286 million in the second quarter alone. It is the country's third largest carrier, flying about 275,000 passengers a day on 3,400 flights. Its largest operations are in Dallas, Chicago, Miami, New York and Los Angeles.
Even if the airline were to file for bankruptcy protection, passengers are likely to see little change.
When Delta and United went through restructuring in the last decade, flights went off normally and frequent flier miles remained intact. Shareholders and bondholder were wiped out. Many employees had their salaries and pensions reduced.
In an effort to return to profitability, American has been rapidly replacing its gas-guzzling jets with newer, more-efficient planes. It recently announced plans to sell its unprofitable regional airline, American Eagle.
The airline in a statement said bankruptcy "is certainly not our goal or our preference. We know we need to improve our results, and we have a sense of urgency as we work to achieve that."
Ray Neidl, an airline specialist with the Maxim Group, said Monday's stock price drop was "a tremendous overreaction."
"American does have big problems to solve, but they have plenty of time to do it," Neidl added.
The carrier is expected to end the third quarter with a healthy $4.2 billion in cash reserves, but in a note to investors Monday morning, Alukos said the airline may ultimately fail to pay some bills.