Aloha Airgroup has filed for Chapter 11 citing high fuel prices and falling fares. With oil at $100 and both competition and a poor economy warring with ticket prices, the question is "who is next?" According to The Wall Street Journal "Despite shedding costs and its underfunded pension plans in its previous trip through bankruptcy, closely held Aloha has continued to struggle financially."
Other US carriers are trading as if they are heading toward bankruptcy if the cost of fuel does not abate. AMR (NYSE: AMR), parent of American Airlines, has watched it stock fall to $9 from over $37 in early 2007. UBS downgraded AMR late last week to "sell" from "neutral", as if the current price point was not already terribly low.
While the stocks in Northwest (NYSE: NWA), Delta (NYSE: DAL), and United (NYSE: UAUA) are off between 45% and almost 60%, AMR is now down 75% over the last year. Its shares now trade at .1x revenue
In 2007, AMR had interest expense of $337 million against operating profits of $965, so its ability to cover debt service is in trouble if its revenue falls by more than a few percentage points or fuel prices drive up expenses. The firm has long-term debt of over $9.4 billion and pension obligations of $3.6 billion.
AMR is at a tipping point and it does not control its own destiny.
Douglas A. McIntyre
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