some bad news out today.
Airlines dive deep, deeper, deepest
Sector, most carriers land in new troughs after downgrade
By Jennifer Waters, CBS.MarketWatch.com
Last Update: 4:17 PM ET Oct. 9, 2002
NEW YORK (CBS.MW) -- Airline stocks were bleeding heavily in one of the darkest days of trading since the terrorist attacks after an analyst slashed estimates on the biggest carriers, cut AMR's rating and predicted a handful of bankruptcies should a war break out in Iraq.
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That was more than investors could handle. They did some hacking of their own, chopping huge chunks of market value off nearly every major airline stock.
The Amex Airline Index (XX:$XAL: news, chart, profile) plummeted deeper than 9 percent to an all-time bottom, ending the session at 26.98, just slightly ahead of its intra day low. Five of the eight components that make up the index hit fresh troughs - some at levels they haven't touched in two and three decades decades. Of the top 13 carriers, nine toppled double digits.
Credit Suisse First Boston analyst Jim Higgins, who has been aggressive in taking down the industry and individual stocks, now says pension plans are the latest threat to cash flows.
In a note to clients, he said the shortfall in revenues will further dampen near-term liquidity -- already pressured by debt payments, capital expenditures and lease payments -- when cash pension contributions are added to the outflow.
"The combination of under-funded pension plans and dreadful equity market performance may result in companies having to contribute cash to their pension plans that is far above historic levels," Higgins said.
Certain carriers have company-specific issues that will modify cash outflows over the next few years, Higgins said, but Delta, Northwest and UAL "appear especially hard hit."
And that doesn't include a war-risk scenario. Add in the impact of an attack on Iraq, and Higgins said "several carriers teeter on required minimum cash levels to avoid bankruptcy, notably AMR, America West and Continental." Higgins has already said he expects to see UAL in bankruptcy.
"Unfortunately, the triple whammy of a less favorably fundamental outlook, risk from a war with Iraq, and pension funding issues considerably cloud the next several months' liquidity outlook," he said.
As a result, he took down AMR's recommendation to "neutral" from "buy" and lowered the entire group's investment rating to "market weight" from "over weight."
Before the session ended, Blaylock analyst Ray Neidl urged his clients not to over react to an oversold segment. In particular, he's protective of AMR, Continental, Northwest and Delta.
Management at those airlines "would not voluntarily file for bankruptcy, since it could be time consuming, and would force management to lose control of the company," Neidl said. "These carriers do not have the critical short-term pressure to immediately reduce labor costs."
No matter. The damage was already done. By the time the day ended, the market values on some of the nation's largest carriers had fallen to adjusted levels not seen since the 1970s.
Delta (DAL: news, chart, profile) shares tanked to a 30-year low of $6.47, finishing the session at $6.50, down 12 percent, or 89 cents.
AMR (AMR: news, chart, profile) took its tumble to a 20-year intra day low of $3.25, ending at $3.31, down 15.6 percent, or 61 cents.
UAL (UAL: news, chart, profile) wiped out another 10.1 percent, or 21 cents, to sit at $1.87 - its lowest point since it went public in August of 1994.
Seeing nine-years bottoms were Northwest (NWAC: news, chart, profile), down 9.8 percent, or 56 cents, to $5.14, and Continental (CAL: news, chart, profile) taking the cake as the fattest percentage decliner finished the session at $3.65, down 80 cents, or a whopping 18 percent.
Banging new low ground too was America West (AWA: news, chart, profile), ending at $1.20, or 11.8 percent, or 16 cents off; Alaska (ALK: news, chart, profile) at $14.11, lower by 12 percent, or $1.92; Mesa (MESA: news, chart, profile) at $2.93, down 50 cents, or 14.6 percent; and Frontier (FRNT: news, chart, profile), at $4.02, falling 63 cents, or 13.5 percent.
Southwest Airlines (LUV: news, chart, profile) gave up 62 cents, or 5.1 percent, but stayed away from a fresh low. ATA Holdings (ATAH: news, chart, profile) lost 9.1 percent, or 32 cents, to $3.20. Airtran (AAI: news, chart, profile) ended at $2.64, down 8 percent, or 23 cents.
US Airways (UAWGQ: news, chart, profile) lost a cent to 55 cents.
Even JetBlue (JBLU: news, chart, profile) tumbled to a fresh low of $30.15, prompted by the first day of option selling since its April 12 initial public offering. Trading was so fast and furious that 7 million more shares changed hands than the 10-day average daily volume of 530,000 shares. And that's about one-sixth of the 42 million shares outstanding. |
