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Doomed AMR Shares Gained 12% Wednesday

DALLAS ( TheStreet) -- Shares in American Airlines' bankrupt parent AMR (AMR) were leading airline industry gains on Wednesday despite one small problem: They are on track to becoming worthless.

Airline shares in general rose Wednesday because oil prices fell and because Delta (DAL - Get Report), in an investor day presentation, provided positive guidance for the current quarter and the full year 2012. "It was a very upbeat meeting," said analyst Bob McAdoo of Avondale Partners.
AMR's stock is rising despite its filing for bankruptcy protection. Investors should be ready to reach for their flotation devices.

But AMR's share gain reflects "absolute speculation," McAdoo said. "It has nothing to do with anything at American."

In every single airline bankruptcy since Eastern filed in 1989, the airline's shares have gone to zero when the court process ended. This is because bankruptcy law is intended to create healthy companies, and one way to do this is to enable those companies to raise money and assuage creditors by issuing new stock.

But some traders aren't put off because a stock is worthless or because the New York Stock Exchange routinely delists bankrupt companies. In fact, for the moment, AMR still trades on the NYSE, which has said it is reviewing the airline's status. Shares in Delta, Northwest, United (UAL - Get Report) and US Airways were all delisted during bankruptcy, as were shares in GM (GM - Get Report), after a period of days or weeks.

>>AMR Bankruptcy Lands in the 5 Dumbest Things on Wall Street

In the case of American, shares fell 83%, to 26 cents, on Nov. 29, the day of the bankruptcy filing. Since then they have fluctuated wildly, reaching a high of $1.20 on Dec. 7. That means the fortunate investor who bought at the Nov. 29 close and sold at the high would have registered a 461% gain. This is an attractive number even if the shares, in the end, will have no value, and it explain why short-term traders still find the shares attractive. Once delisted by NYSE, they would still trade on pink sheets.

At the close on Wednesday, AMR shares were up 12%, or 7.4 cents, to 69 cents. US Airways, the second leading gainer among airlines, was up 8%, or 40 cents, to $5.59, while Delta was up 16 cents, to $8.15.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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