AMR shares down as analyst sees more distress

Stock Market Predictions

(Global Markets) - Shares of American Airlines parent AMR Corp (AMR.N) 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 this 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 $800 million of assets next year to use for secured transactions.

He also said AMR's conference call revealed that the company had a $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 labor costs than its major U.S. peers that have restructured, could be a bankruptcy candidate boiled over earlier this month. The company's shares plunged 41 percent on October 3 on growing fears it could be headed for bankruptcy.

AMR, the third-biggest U.S. carrier after United Continental Holdings (UAL.N) and Delta Air Lines (DAL.N), 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 labor contracts, he added, "we do not believe AMR to be in near to medium term risk of insolvency."

Shares of AMR were down 5.2 percent to $2.73 at mid-afternoon after falling more than 7 percent earlier. Other major airline stocks also eased as oil prices rose on Friday [ID:nL5E7LL2CX]. The Arca Airline index .XAL was down 0.3 percent.

(Reporting by Karen Jacobs; Editing by Richard Chang)