Oct. 4 (Bloomberg) -- American Airlines is set to resume contract negotiations with pilots, a bellwether work group in industry labor talks, after parent AMR Corp.'s shares fell the most since 2003 on concern the company may file for bankruptcy.
Today's discussions mark the latest effort to reach an agreement in bargaining that began in 2006. Fort Worth, Texas- based AMR reiterated yesterday that Chapter 11 protection “is certainly not our goal or our preference” as the third-largest U.S. airline seeks more productivity in union agreements.
“More and more of our pilots are worried about the viability of our company and the bankruptcy potential to affect pensions,” Sam Mayer, an Allied Pilots Association spokesman, said in an interview. American hasn't broached the idea of restructuring in court, he said, adding, “They don't even speak the B-word.”
AMR climbed today after tumbling 33 percent yesterday as Avondale Partners LLC and Capstone Investments raised their ratings. The shares gained 40 cents, or 20 percent, to $2.38 at 2:14 p.m. in New York Stock Exchange composite trading.
Yesterday's plunge followed a second straight month of higher-than-normal retirements among pilots locking in pension values. Ray Neidl, a Maxim Group LLC analyst in New York, said investors reacted in part to the prospect of a recession damping air travel, hurting an already weakened AMR.
Circuit Breakers
The shares plummeted so quickly that so-called circuit breakers to temporarily halt trading took effect seven times in less than an hour. About 76.8 million AMR shares changed hands, more than five times the three-month daily average.
“These things start to kind of set themselves on fire, and then everyone is alerted to the breaker, and the Twitter-sphere lights up and it's on TV and there are more eyes seeing it,” Joseph Saluzzi, co-head of equity trading at Themis Trading LLC in Chatham, New Jersey, said in an interview. “People get nervous, and they shoot first and ask the question later.”
AMR led stock-price declines this year through yesterday among the largest U.S. airlines, falling 75 percent, and is headed toward a fourth consecutive annual loss. The shares closed yesterday at $1.98.
Market Value
That gave AMR a market value of about $663.7 million, ranking ninth in the U.S. industry by that measure. That's less than the list price of three new Boeing Co. 777-300ER jets, the costliest variant of the largest planes in American's fleet.
“While we generally don't comment on AMR's share price performance, there is no company-driven news that has caused the volatility in AMR shares,” Andy Backover, a company spokesman, said yesterday in an e-mail. “Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference.”
AMR isn't planning a bankruptcy filing, said a person familiar with the issue who wasn't authorized to speak publicly. The company expected to end last quarter with cash and short- term investments of about $4.7 billion, including $475 million in restricted cash, according to a Sept. 21 regulatory filing.
“We still think they need to do something drastic, however AMR management is intent on not filing for bankruptcy,” Helane Becker, an analyst at Dahlman Rose & Co. in New York, wrote today in a note to clients. She recommends selling the stock, and said she remains concerned about AMR's liquidity.
Contracts protecting AMR debt against a default for five years rose 1 percentage point today to 65.8 percent upfront, according to data provider CMA. That's in addition to 5 percent a year, meaning it would cost $6.58 million initially and $500,000 annually to protect $10 million of AMR's debt. Credit- default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.
Pilot Retirements
Pilot retirements from American have totaled at least 10 times the monthly average in September and October as they sought to shelter their pensions from stock market declines.
That motive, not inside knowledge about a pending bankruptcy, is driving the heightened rate of pilots' departures, the APA said in a statement late yesterday. The stepped-up pace probably also reflects more pilots nearing the mandatory-retirement age of 65, up from 60, the union said.
Pilots are usually the focus for airline-industry labor agreements, helping set the stage for other accords. Negotiations with American's three major work groups are so bogged down that federal mediators are no longer participating.
Unions for the pilots, flight attendants and ground workers want to recoup at least part of the $1.6 billion in annual concessions made to avert bankruptcy in 2003, while American says it has an $800 million-a-year labor-cost disadvantage to rivals that reorganized in court in the past decade.
Analysts' Upgrades
AMR isn't stoking any Chapter 11 concerns, according to a report yesterday from Daniel McKenzie, a Rodman & Renshaw analyst in Chicago. He raised his rating on the stock to “market outperform” from “market perform,” citing the plunge in the shares and no sign of a bid for court protection.
Avondale's Robert McAdoo, who is based in Prairie Village, Kansas, raised his rating on AMR to “market perform” from “underperform,” saying in a report today that the company “should have no trouble meeting its obligations” even with a projected loss of $1.06 billion this year. Capstone's Steve Wilder in New York raised his rating to “buy” from “hold.”
David Swierenga, a former chief economist at the Air Transport Association trade group who now runs consultant AeroEcon in Round Rock, Texas, also suggested that yesterday's selling went too far.
“There is nothing in the fundamentals that singles out American right now,” Swierenga said in an interview.
Equity investors weren't swayed by those arguments as they drove down AMR shares to the lowest since March 2003, when American was trying to win the employee givebacks that staved off bankruptcy that year.
“AMR Corp. stock and bonds are in the worst tailspin since 2001 over the past week on fresh concerns that the company is edging alarmingly close to bankruptcy,” Vicki Bryan, a senior bond analyst at Gimme Credit LLC, said in a report. With the U.S. recovery seemingly stalled, AMR “will likely feel the pain faster and more deeply than most of its larger peers.”
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