Stock Finished Below $2 Amid Bankruptcy Speculation
Shares of stock in American Airlines suffered a perfect storm on
Monday. On a trading day that saw most airline stocks fall sharply
on predictions from a leading trade organization of an industry
downturn, AMR Corp. led the race to the bottom. Shares in American
Airline's parent company fell as much as 40 percent on the New York
Stock Exchange during the day, triggered an emergency suspension of
trading seven times, and closed down 33 percent at $1.98. That's
the first time since 2003 the stock has finished a day below
$2.
The IATA statement on Monday came from Director General and CEO
Tony Tyler, who said, "The industry has shifted gears downward. The
pace of growth in passenger markets has dipped and the freight
business is now shrinking at a faster pace. With business and
consumer confidence continuing to slump globally there is not a lot
of optimism for improved conditions any time soon."
Many airline stocks responded by finishing the day down double
digits. But AMR's problems were compounded by recent speculation
that the company may be forced to declare bankruptcy. American's
direct competitors have all used bankruptcy in recent years to
emerge with cost structures lower than those of AMR, and while they
were profitable in the second quarter, American lost $268
million.
AMR reports it has about $4 billion in cash available, so there
is no indication the company would be forced into bankruptcy
immediately. AMR recently spun off its American Eagle regional
subsidiary, and announced a massive order for 460 new airliners,
split between Boeing and Airbus, to replace its older planes and
lower operating costs.
The Allied Pilots Association, the union representing pilots at
American, felt the need to respond to rumors within the investment
community that a surge in pilot retirements might be based in
inside information of an imminent bankruptcy. In its statement, the
union said many pilots delayed retirement in response to a change
in the FAA's mandatory retirement age from 60 to 65, and are now
looking at the effect of overall stock prices on their
portfolios.
The statement explains, in part, "When pilots age 60 and older
retire, a portion of their pension is based in part on a 60-day
‘look back.’ As an example, pilots who retired on
September 30 secured the pension unit value that was in effect on
July 31 before the bulk of the stock market’s
decline...APA’s rank-and-file members are not privy to inside
financial information. Our advisers have in fact indicated that the
airline does not face any immediate liquidity crisis and possesses
respectable cash reserves."
The company had no official comment on the stock's free fall
Monday other than to say, "there is no company-driven news that has
caused the volatility in AMR shares today."
The low prices on Monday triggered some buying by bargain
hunters. Most airlines were up Tuesday, and AMR closed up about 20
percent at $2.37.