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American Airlines shares tumble 41% on outlook

Shares of American Airlines parent AMR Corp. (AMR-N) fell as much as 41 percent Monday on growing fears the third-largest U.S. airline is headed for bankruptcy, although the carrier said Chapter 11 is "not our goal."

The stock's decline to its lowest price since 2003 outpaced share losses posted by rival carriers, which also suffered on worries that economic weakness could drain travel demand this autumn.

"When can they stop the bleeding of cash?" asked Basili Alukos, an equity analyst at Morningstar. AMR had a second-quarter net loss of $286 million, while rivals showed profits.

"If it appears we're coming into somewhat of a rough patch or slowdown, how is that going to fare for them?" Alukos said. "I don't think very well, because they were unable to generate a profit kind of in the best of times for the airlines last year."

American is seen financially as the weakest major. Shares of companies that declare bankruptcy usually become worthless, and new shares are typically issued once the restructuring is complete.

AMR stock was halted seven times on the New York Stock Exchange. Shares of a stock are halted on the NYSE each time it moves more than 10 percent in a five-minute period.

AMR spokesman Andrew Backover acknowledged the speculation but declined to say whether AMR was considering a Chapter 11 filing.

"That is certainly not our goal or our preference," Backover said in an e-mail. "We know we need to improve our results, and we have a sense of urgency as we work to achieve that."

Ray Neidl, a senior aerospace sector analyst with Maxim Group, said in a recent research note, "Some believe that a prepackaged bankruptcy filing would be the best thing for AMR and the industry."

In 2003, American retained lawyers from Weil Gotshal & Manges to advise it on a potential bankruptcy filing that ultimately did not happen. It was unclear whether the airline has kept the firm on retainer. Weil could not immediately be reached for comment on Monday.

American Airlines is the only major carrier that did not restructure in Chapter 11 during the recent industry downturn. As a result the airline has operating costs, including labor costs, that are higher than those of competitors. The company is currently renegotiating contracts with its labor unions.

Its top rivals, UAL Corp. and Delta Air Lines, both used bankruptcy protection to slash costs in the last decade and have since found merger partners. Delta bought Northwest Airlines and UAL Corp. bought Continental Airlines to form United Continental Holdings.

American Airlines was not part of the latest wave of airline consolidation, although some experts believe US Airways Group is a likely partner for AMR at some point.

In July, American placed a giant order for 460 single-aisle jets worth up to $40 billion US, splitting the business between Boeing Co and EADS unit Airbus. The record-large order for fuel-efficient planes is meant to help the carrier cut costs.

The sharp decline of AMR shares was reflected in the options market where implied volatility, a barometer of anxiety, shot up 136.39 percent to 194.42 percent in early-afternoon trade on fears the U.S. economy may be heading into recession and concern that AMR may declare bankruptcy, according to a note from Interactive Brokers Group options analyst Caitlin Duffy.

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