Airlines Hit By UBS & Swine Flu (CAL, AMR, LCC, UAUA, XJT, CPA)

Airlines are getting hit hard this morning before the open on two issues: swine flu and an analyst downgrade.  UBS has downgraded the US legacy airline sector in a broad call and the impact on some of these stocks looks exacerbated by the swine flu news.  The new sector ratings were taken to NEUTRAL from BUY.  Among the downgrades were Continental Airlines (NYSE: CAL). AMR Corp. (NYSE: AMR), US Airways (NYSE: LCC), and IAL Corp. (NASDAQ: UAUA).  There is also a secondary tie here for both ExpressJet Holdings Inc. (NYSE: XJT) and Copa Holdings SA (NYSE: CPA).

On the Swine Flu front, health advisories to and from Mexico are starting to allow travelers to change their flight plans to or from Mexico.  Continental’s former unit called ExpressJet Holdings Inc. (NYSE: XJT) operates many of the Continental flights from Mexico  to the U.S..

Copa Holdings SA (NYSE: CPA) is not exactly a Mexican airline, but it was tied to Continental and is based in Panama.  This may not be fair at all, but this may be close enough for US investors to avoid as it has operations in Brazil, Argentina, Chile, Mexico, Colombia, Panama, and the United States.

UBS’s note has brought to light that bankruptcy remains a risk for many of the legacy carriers even if there is a recovery.  It is not forecasting that these will go into bankruptcy, but has noted that it will get close at some.

JON C. OGG