Airport News
Shares of American Airlines parent AMR were being closely watched on Monday after they fell more than 5 percent on Friday as a Morningstar analyst said the carrier is likely headed for bankruptcy.
Analyst Basili Alukos said, based on information disclosed last week during AMR's earnings conference call, the company's cash burn may increase to the point that it may run out of cash over the next five years.
The disclosures Alukos cited include AMR saying it has no unencumbered assets left on its balance sheet and that it expects to release about USD$800 million of assets next year to use for secured transactions.
He also said AMR's conference call revealed that the company had a USD$250 million drop in cash because of frequent-flyer mile redemption. He added the company likely has further liability tied to those miles.
"Unless AMR receives a substantial cash infusion or earns loan forbearance, we believe the company will eventually succumb to financial distress," Alukos said in a client note on Friday.
Speculation that AMR, which faces higher labour costs than its major US peers that have restructured, could be a bankruptcy candidate boiled over earlier this month. The company's shares dropped 41 percent on October 3 on growing fears it could be headed for bankruptcy.
AMR, the third-biggest US carrier after United Continental and Delta Air Lines, reported a wider than expected quarterly loss this week, blaming higher fuel costs and a spike in the dollar's value that eroded overseas sales.
Wolfe Trahan analyst Hunter Keay said in a published note on Thursday that while AMR will likely post "deep losses" in 2012 and 2013 unless there is a significant change to existing labour contracts, he added, "we do not believe AMR to be in near to medium term risk of insolvency."
