April 20, 2021

American Airlines Bankruptcy Fears Drive Down Stock

The sell-off reflected investors’ increasing nervousness that American Airlines, with high debt levels and high labor costs, might be too weak to weather another economic downturn. Its competitors, meanwhile, have consolidated and strengthened their share of the airline market.

The decline on Monday was the steepest drop for American’s parent, the AMR Corporation, in a decade, and it precipitated a general sell-off in airline stocks throughout the day. AMR shares closed at $1.98 after setting off repeated automatic trading halts meant to prevent widespread losses. Still, Delta Air Lines and United Continental Holdings both fell more than 11 percent, and US Airways lost nearly 16 percent.

Even before Monday’s drop, American’s shares were down 62 percent since the start of the year. The severity of the decline, which sent the stock price to its lowest level since 2003, forced the carrier to dismiss speculation that it might be considering a prepackaged bankruptcy.

“Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference,” Andrew Backover, a company spokesman, said in a statement. “We need to improve our results, and we are keenly focused as we work to achieve that.”

Most network airlines have gone to bankruptcy court in the last decade, sometimes repeatedly, to restructure their obligations and rewrite contracts as fuel prices soared and the industry struggled against low-cost competitors. American, however, managed to avoid filing for bankruptcy after obtaining major concessions from its labor groups.

The strategy still left the airline with higher operating costs than the other legacy carriers, including pension obligations, higher labor costs and less flexible work rules for its pilots. American has struggled in recent years to make up that gap, posting losses for much of the decade even as other airlines managed to turn a profit last year.

But even as Wall Street has grown impatient with the company’s troubles, some analysts did not think it was under any immediate duress to restructure.

AMR’s total debt was $17.1 billion at the end of the second quarter, up from $16.1 billion in the same period last year. But the company was still able to raise money last month when it completed a $725.7 million 10-year bond offering.

The airline said last month that it would end the third quarter with $4.2 billion in cash. It is expected to post a loss of $110 million in the third quarter.

Some analysts said the sell-off had been set off by news that an exceptionally large number of American pilots had taken an early retirement offer last week and opted for a lump-sum payment on their pension.

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Stocks & Bonds: Wall Street Rises as Bank Fears Ease in France

All 10 main industries in the S. P. 500 advanced, and gains were led by industrial, raw material and technology companies. The Dow Jones transportation average rose 3.4 percent as airline stocks climbed. Shares in Wells Fargo Company and Fifth Third Bancorp rose more than 1 percent, on the heels of a rally by European lenders. Stock in the health insurer Aetna rose 5.4 percent as it said profit would probably beat its previous forecast.

The S. P. 500 was up 10.6 points, or 0.9 percent, at 1,172.87 after falling as much as 0.4 percent. The index has risen 1.6 percent in two days. The Dow Jones industrial average rose 44.73 points, or 0.4 percent, to 11,105.85. The Nasdaq composite index added 37.06 points, or 1.5 percent, to 2,532.15.

“Stocks are trading on the news of the day and the news was moderately favorable,” said Michael Cuggino, who oversees $15 billion at Permanent Portfolio Funds in San Francisco. “While the issues of liquidity and health of the European banking system and the long-term viability of the euro are still out there, today is a day where people are looking beyond that. We’ve had a big correction. Levels really haven’t gotten back to where they were.”

Global stocks rose as BNP Paribas, France’s biggest bank, and Société Générale surged after easing concerns over their access to funding. Shares in Société Générale jumped after its chief executive, Frédéric Oudéa, said in an interview with Bloomberg Television in New York that the bank’s potential losses from European sovereign debt were “manageable” and that it could do without access to money market funds in the United States.

“For our bank, the exposure to sovereign debt is low, absolutely manageable,” Mr. Oudéa said. “We have plenty of buffers of liquidity and we are adjusting to the reduction in the money market fund exposure.”

Stocks briefly trimmed gains after a report that the German finance minister, Wolfgang Schäuble, said Greece should not receive any aid beyond what had already been agreed upon.

The KBW bank index rose 1.2 percent. Stock in Wells Fargo gained 1.1 percent to $24.36. Fifth Third Bancorp shares rallied 4.2 percent to $10.35.

All 20 stocks in the Dow Jones transportation average rose. Shares of Delta Air Lines climbed 8.3 percent to $7.99. United Continental Holdings advanced 7.4 percent to $19.28.

Aetna shares rose 5.4 percent to $40.53. Earnings excluding some items this year are now expected to be more than $4.60 to $4.70 a share, the company said in a corporate filing Tuesday. Demand for medical care continues to be lower than previous expectations, helping to contain costs, Aetna said.

The situation in Europe overshadowed the latest economic data from the Labor Department, which said prices of goods imported into the United States fell in August for the second time in three months as the cost of oil and food dropped.

The department said the import-price index fell 0.4 percent. The decline followed a 0.3 percent increase in July. Economists projected a 0.8 percent decrease, according to the median of 52 estimates in a Bloomberg News survey. Prices excluding fuel rose 0.2 percent.

Interest rates rose. The Treasury’s benchmark 10-year note fell 13/32, to 101 6/32, and the yield rose to 1.99 percent from 1.95 percent late Monday. Gold rose $16.90, to $1,826.80, and crude oil settled at $90.28, a gain of $1.97.

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