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Wed, Oct 05, 2011

AMR Shares Rebound From Monday Collapse

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.

FMI: www.aa.com ; APA Statement

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