This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

American Airlines: Are the Worries Overstated?

DALLAS TheStreet) -- AMR (AMR), the parent of American Airlines, is strongly opposed to filing bankruptcy and has $4.2 billion in unrestricted cash, but bankruptcy chatter is still swirling around the company.

On Monday, a column in the Wall Street Journal discussed American's problems. The column concluded that the market for airline debt is healthy, that "American filing for bankruptcy out of choice is unlikely," and that other airlines are better investments.

Around 1 p.m., though, American shares began to tumble, with sharp drops triggering trading halts seven times in less than an hour. By the close, the shares had given up 98 cents or 33% of their value, falling to at $1.98. At one point, they traded at $1.75.

Before Monday, the shares had not fallen below $2 since March, 2003, when the company flirted with bankruptcy, but elected to remain the only major U.S. carrier never to have filed.

Shortly before the close, AMR issued a statement, saying that "While we generally don't comment on AMR's share price performance, there is no company-driven news that has caused the volatility in AMR shares today.

"Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference," the company said. "We know we need to improve our results, and we are keenly focused as we work to achieve that."

Shortly after the close, veteran Standard & Poor's airline analyst Jim Corridore reiterated a hold on the carrier.

"While we view AMR as the financially weakest U.S. airline, it had $5 billion in cash/investments at the end of Q2," Corridore wrote. "Our Q3 forecast is for a loss of about $110 million, and we do not think the company has been burning through an unreasonable amount of cash. For this reason, we would be surprised by a bankruptcy filing in the next 12 months."

"Long term, we see AMR challenged by high costs, debt and pension obligations and a need to modernize its fleet," he wrote.

American, which has said that it has an $800 million annual labor cost disadvantage relative to competitors, is currently in labor talks with all of its major unions. It is unclear where the talks will lead -- the Association of Professional Flight Attendants has repeatedly questioned the validity of the numbers that American uses to say its labor costs are higher --but it is entirely conceivable that talk of a potential bankruptcy could have an impact on the tentative agreements that one day result.

American's most obvious problem is that Delta (DAL - Get Report) and United Continental (UAL - Get Report), its two principal competitors, went into bankruptcy in the middle of the past decade, reduced costs, and then merged with competitors to leap past American in the size of their global route structures. Now both have lower costs and bigger networks.

As far as actual news concerning the possibility that American could file for bankruptcy protection, the principal recent event came on Sept. 13, when Treasurer Bev Goulet addressed the question in a meeting with analysts.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DAL $41.67 0.00%
UAL $45.81 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs