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Home » American Airlines » American Airlines Headed for Bankruptcy?
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American Airlines Headed for Bankruptcy?

Matthew October 3, 2011 Leave a Comment

The balance sheet at American Airlines is looking more troubling by the day.  Some are warning about bankruptcy, though I am not convinced that will be necessary. In fact, if you are the gambling-type, this may be the perfect time to invest in American Airlines stock.

Rumors flared today that a bankruptcy filing was imminent and American’s response was not all that reassuring to investors:

The company said there was no concrete news behind the rumors, but also said that a court-guided restructuring “is certainly not our goal or our preference.”

AA’s stock fell 33% during trading today to close at $1.98/share, with many pilots selling off their stock on fears the airline would fail. The stock is down 75% this year alone.

It is true that AA’s numbers are not good—they lost $286 million during the second quarter, face mounting and debt, an aging an inefficient fleet, and may find themselves in an Air India type situation with insufficient funds to pay for their 400+ aircraft order with Boeing and Airbus.

But the company is still sitting on a lot of cash—$5BN to be exact—and so far they are not burning through it at an alarming rate.

Jim Corridore of Standard & Poor’s Equity Research said they do not anticipate a bankruptcy filing.

“While we view AMR as the financially weakest US airline, it had $5.0 billion in cash/investments at the end of Q2. Our Q3 forecast is for a loss of about $110 million, and we do not think the company has been burning through an unreasonable amount of cash,” he said.

So I am going to take a gamble and purchase some AMR stock tomorrow if I can lock in a good price. The stock has already rebounded 10% in after-hours trading and I think at $2/share the stock is currently undervalued. AA may need to do what the other legacies did and enter Chapter 11 in order to effectively restructure, but I see that happening down the line, leaving me at least six months to see what happens with the stock.

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About Author

Matthew

Matthew is an avid traveler who calls Los Angeles home. Each year he travels more than 200,000 miles by air and has visited more than 120 countries over the last decade. Working both in the aviation industry and as a travel consultant, Matthew has been featured in the New York Times, Chicago Tribune, Wall Street Journal, USA Today, BBC, Fox News, CNN, ABC, CBS, NBC, Al Jazeera, Toronto Star, and on NPR. Studying international relations, American government, and later obtaining a law degree, Matthew has a plethora of knowledge outside the travel industry that leads to a unique writing perspective. He has served in the United States Air Force, on Capitol Hill, and in the White House. His Live and Let's Fly blog shares the latest news in the airline industry, commentary on frequent flyer programs and promotions, and detailed reports of his worldwide travel. His writings on penandpassport.com offer more general musings on life from the eyes of a frequent traveler. He also founded awardexpert.com, a highly-personalized consulting service that aids clients in the effective use of their credit card points and frequent flyer miles. Clients range from retirees seeking to carefully use their nest egg of points to multinational corporations entrusting Matthew with the direction and coordination of company travel.

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