American Airlines parent AMR Corp. fell to its lowest level in 23 months in New York trading after the money-losing carrier’s record jet order failed to calm investor concerns about its future.
“We have to admit a bit of disappointment that a more comprehensive plan to restore profitability in the near-term didn’t accompany” the order, Gary Chase, a Barclays Plc analyst in New York, said in a report today. “We unfortunately don’t think this changes much in the near-term for AMR, which continues to languish versus peers.”
AMR has posted three straight annual losses and is the only major U.S. carrier forecast by analysts to record deficits again this year and next. Management at the Fort Worth, Texas-based company has been pressed by analysts since last year to take steps to restore profits.
AMR dropped 37 cents, or 7.5 percent, to $4.55 at 4:03 p.m. in New York Stock Exchange composite trading, its lowest closing price since July 23, 2009.
The stock has tumbled 42 percent this year, leading declines among the 11-member Bloomberg U.S. Airlines Index. AMR’s market cap has shrunk to $1.53 billion, compared with $8.29 billion at Southwest Airlines Co., the biggest discount carrier.
“In an uncertain environment, where the economic outlook is cloudy yet fuel prices remain stubbornly high, there is simply too much downside leverage in AMR shares for our comfort,” James M. Higgins, a Ticonderoga Securities LLC analyst in New York, said in a note to investors.
Higgins cut his rating on AMR to “sell” from “neutral,” reduced his price target to $3 and widened loss estimates for this year and next.
AMR announced the order for 460 Boeing Co. and Airbus SAS jets yesterday, the same day it unveiled a planned spinoff of its American Eagle regional unit after more than a year of review. The aircraft order includes $13 billion in financing from the planemakers.
AMR’s second-quarter loss widened to $286 million, while United Continental Holdings Inc., US Airways Group Inc. and Alaska Air Group Inc. today reported quarterly profits that exceeded analysts’ estimates.
“AMR is burning cash in a recovery,” Kevin Crissey, a UBS Securities LLC analyst in New York, said in a report. “This is troubling. We believe the company is underperforming the industry in far too many ways.”
While the Eagle divestiture and replacing more fuel-guzzling aircraft will help, neither will solve the company’s problems in the short term, said Crissey, who widened his loss estimate this year to $4 from $3.58 a share and has a “neutral” rating on the stock.
The new planes will come with higher ownership costs and more fixed versus variable expense, Chase said, and will dilute revenue from each seat flown a mile because they are larger.
American is “urgently evaluating” additional cost-reduction steps beyond $100 million in savings it already identified for this year, Chief Financial Officer Bella Goren said on a conference call yesterday. The airline also is dropping some unprofitable routes, closing a reservations office in Dublin and planning to further trim capacity early next year.
The carrier, which has the industry’s highest labor costs, is trying to secure productivity gains amid contract negotiations with major unions that began as far back as 2006.
“This is going to make them or break them,” Ray Neidl, a Maxim Group LLC analyst, said in an interview. “Usually when an airline is losing a lot of money, they do get some cooperation from employees. Right now employees feel they’ve made enough of a sacrifice, so it’s a question of being stuck between a rock and a hard place.”