AMR Rebounds After Rout as Talks Resume With Pilots at American

American Airlines parent AMR Corp. (AMR) gained 21 percent, rebounding after bankruptcy concerns triggered its worst decline since 2003, and the carrier resumed contract negotiations with pilots.

Today’s discussions marked the latest effort to reach an accord 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 as Avondale Partners LLC and Capstone Investments raised their ratings following yesterday’s 33 percent plunge. The shares jumped 41 cents to $2.39 at 4 p.m. in New York Stock Exchange composite trading to lead gains in the 20-company Dow Jones Transportation Average.

Yesterday’s drop came after 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.

AMR leads stock-price declines this year among the largest U.S. airlines, falling 69 percent, and is headed toward a fourth consecutive annual loss.

Talks Under Way

American’s negotiations with the pilots union were still under way at 4 p.m. New York time, said Mayer, the APA spokesman. He didn’t have details. AMR didn’t respond immediately to telephone and e-mail messages left for comment about the talks.

Andy Backover, a company spokesman, said yesterday there was “no company-driven news” behind the stock-price decline. “Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference,” he said in an e-mail.

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.

‘Not 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 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.

Pilot Focus

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.

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.”

No Fundamentals

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.”

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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