Shares of American Airlines parent AMR fell 33 percent on Monday on growing fears the third-largest US airline is headed for bankruptcy, although the carrier said Chapter 11 is "not our goal."
The stock's decline to its lowest price since 2003 outpaced the share losses of rivals, which also suffered on worries that economic weakness could hit travel demand.
"When can they stop the bleeding of cash?" asked Basili Alukos, an equity analyst at Morningstar. AMR had a second-quarter net loss of USD$286 million, while rivals showed profits.
AMR spokesman Andrew Backover acknowledged the speculation but declined to say whether AMR was considering Chapter 11.
"Regarding rumours and speculation about a court-supervised restructuring, that is certainly not our goal or our preference," he said. "We know we need to improve our results, and we are keenly focused as we work to achieve that."
Although AMR typically does not comment on its stock prices, Backover noted "there is no company-driven news that has caused the volatility in AMR shares today."
American is seen as the financially weakest large US carrier, and its stock closed down 33 percent at USD$1.98 on the New York Stock Exchange.
Shares of bankrupt companies usually become worthless, and new shares are typically issued once the restructuring is complete.
AMR's stock was halted seven times on the New York Stock Exchange on Monday. Trading is halted on the NYSE each time a stock moves more than 10 percent in a 5-minute period.
AMR said in regulatory filing last month that it expects to end the third quarter with unrestricted cash of USD$4.2 billion. Also last month, AMR sold USD$725.7 million bonds to offset a significant portion of the USD$1.3 billion in debt maturities remaining for 2011.
"If it appears we're coming into somewhat of a rough patch or slowdown, how is that going to fare for them?" Alukos said. "I don't think very well, because they were unable to generate a profit kind of in the best of times for the airlines last year."
BANKRUPTCY AN OPTION, FAR FROM CERTAIN
Ray Neidl, a senior aerospace sector analyst with Maxim Group, said in a recent research note, "Some believe that a prepackaged bankruptcy filing would be the best thing for AMR and the industry."
But he noted on Monday that a bankruptcy filing is not inevitable.
"We do not believe that this management wants to or, in fact, is prepared to do a filing at this point and they would not be forced into one with cash reserves of over USD$4 billion of free cash," Neidl said.
In 2003, American retained lawyers to advise it on a potential bankruptcy filing that ultimately did not happen. It was unclear whether the airline has kept the lawyers on retainer.
American Airlines is the only major carrier that did not restructure in Chapter 11 during the recent industry downturn. As a result the airline has operating costs, including labour costs, that are higher than those of competitors.
The company is renegotiating its labour contracts. Management told the Allied Pilots Association union last week that 129 pilots said in September they would retire on October 1, an unusually high number for a single month.
The mass retirement spurred the bankruptcy talk on Monday because the move by those pilots locks in pension values that might have been in jeopardy if the workers risked sticking with the company through a bankruptcy reorganisation when it is easier for a company to jettison pensions.
"Many assumed that part of the reason was that on retirement, pilots could take a lump sum payment on their pension and many pilots just wanted to call it quits before the situation deteriorated further," Neidl said.
Gregg Overman, a union spokesman, said a backlog of retirements are hitting now as pilots take advantage of a contract provision that enables them to leave and lock in a pension value somewhat higher than it would be if they stayed.
"Many are looking at stock market volatility and the global economy and what the prospects are going to be for the industry and American if you have this kind of turbulence and economic uncertainty," Overman said.
"They are not acting on any inside information about the airline's financial state," he said, noting that to the best of his knowledge, the bankruptcy talk at American is rumour and is not being discussed at the bargaining table.
AMR rivals, United Continental and Delta Air Lines, which both used bankruptcy protection to cut costs in the last decade, have since found merger partners. Delta bought Northwest Airlines and United bought Continental.
American Airlines was not part of the latest wave of airline consolidation, although some experts believe US Airways is a likely partner for AMR at some point.
In July, American placed a giant order for 460 single-aisle jets worth up to USD$40 billion, splitting the business between Boeing and Airbus. The record-large order for fuel-efficient planes is meant to help the carrier cut costs.