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.
(Page 2 of 2)
AMR had about $9.8 billion in liabilities as of June 30. While Delta had $12.8 billion in liabilities and United had $12.76 billion, both are twice the size of American.Skip to next paragraph
Subscribe Today to the Monitor
Factors leading to Monday's stock plunge were:
— The International Air Transport Association said that the industry may be headed for a downturn because of a weakening economy.
— A Wall Street Journal column suggested bankruptcy protection as one of American's options.
— Worries about $726 million the airline borrowed last week. The airline paid a pricey 8.75 percent interest rate at a time when rates are historically low.
— Some on Wall Street viewed high numbers of retiring pilots as a sign that senior employees are worried about American's future. At the start of the weekend, 129 pilots put in their retirement papers. The prior month saw 111 pilots retire. During a typical month, 10 retire. Speculation was that pilots wanted to take a lump sum payment on their pension, avoiding a cut in benefits like those seen during United's bankruptcy.
David J. Bates, president of the pilots union for American, dismissed that notion. A provision in the pilots' retirement benefits allows them to lock in the value of some of their investments going back 60 to 90 days, so pilots who retire now can avoid this summer's stock market slump.
"A lot of it is pure economics," Bates said.
Bates reiterated his confidence in the company's finances saying, "I don't see any immediate liquidity concerns."
Not everybody sees the airline heading to bankruptcy court.
"Management has indicated time and time again that they have no interest in filing," said Helane Becker, an analyst with Dahlman Rose.
While most major U.S. airlines filed for bankruptcy protection early last decade, American chose to avoid restructuring. It also avoided a reorganization when fuel prices spiked and travel declined in 2008 and 2009.
Jim Corridore, an airlines analyst with Standard & Poor's, said that despite its losses, the airline has not "been burning through an unreasonable amount of cash."
"For this reason," he said, "we would be surprised by a bankruptcy filing in the next 12 months."