AMR Bankruptcy, A Real Boon For Airlines (AMR, UAL, LCC, LUV, DAL, JBLU)

Investing

Published: November 29, 2011 10:51 am

Last Updated: November 29, 2011 11:41 am

The news flow around the AMR Corporation (NYSE: AMR) filing for bankruptcy is rampant. Some say it was expected and others believe it was premature. The aim to work its cost structure, but this action will kill the common shareholders.

It may seem odd, but the AMR bankruptcy is likely a boom for the likes of United Continental Holdings, Inc. (NYSE: UAL) and US Airways Group, Inc. (NYSE: LCC), which are up 6% and 10% respectively. Southwest Airlines Co. (NYSE: LUV) is up 0nly 1 penny at $7.88 and Delta Air Lines Inc. (NYSE: DAL) is up 3.6% at $7.70. Even JetBlue Airways Corporation (NASDAQ: JBLU) is catching a 5.7% pop higher.

All those bankruptcy rumors now turned out to be true. AMR has noted that it has $4.1 billion cash in the bank and also that it will honor all tickets and reservations for American and American Eagle Flights.

The market is telling you that shareholders will be left with nothing here. AMR’s stock is down 85% at $0.2311 and the new 52-week trading range is $0.80 to $8.89.

Gerard Arpey has also announced his decision to retire as Chairman and Chief Executive Officer. I wonder what his parachute has considering that this wipes out shareholders.

This move will allow other airlines to have a stronger negotiating position, it will also allow for potentially higher ticket prices, and more nickel-and-dime fees. If this wasn’t true you wouldn’t have the peers up as much as 10%.

Early this morning in the pre-market AMR’s stock was down about 60%. For it to slide further is a sing of doom heading the way of AMR. A bankruptcy stock down 60% indicated at least some chance of there being assets left over. A drop of almost 86% is a sign of a death sentence.

JON C. OGG

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