American Airlines (AMR) Is A Penny Stock!
Im sure youve heard it by now AMR (AMR), the parent company for American Airlines, has just filed for Chapter 11 bankruptcy.
As of this writing, shares in AMR are trading for a minuscule $0.33. You know what that means American Airlines is a penny stock!
I know, I know ho hum. Another airline files for bankruptcy. In this day and age, weve come to expect every airline not named Southwest (LUV) to file for bankruptcy protection at least once every decade.
However, surprise or not, its still a big deal.
After all, this is American Airlines were talking about. This isnt some regional, podunk airline. They used to be the largest US carrier and they still have 3,000 daily US departures.
As a matter of fact, in 2007 the stock was trading for over $40 a share!
However, AMR just couldnt hack it. The entire industry is dealing with lower demand for air travel. At the same time, jet fuel costs are soaring. Now thats a tough combination for any airline to overcome.
Meanwhile, AMRs main competitors like United Continental (UAL) and Delta (DAL) had already used Chapter 11 protection earlier in the decade to cut costs and initiate important mergers. In other words, American was already working at a disadvantage.
Heres the thing
AMR had another huge issue to contend with. And it ultimately led to their undoing.
You see, the company has been stuck in union negotiations for years. And while they were unable to come to terms with the union, their labor costs kept on rising compared to their competitors.
Ultimately, it was the high labor costs that forced the companys hand. Of course, Chapter 11 is one way to resolve stalled contract negotiations.
Too bad it also wipes out the shareholders
To be frank, bankruptcy was the best solution for AMR at this stage. The company can now focus on restructuring while they actually have enough cash to survive the process.
Theyll likely emerge from bankruptcy as a stronger company.
But as I mentioned earlier, it doesnt help shareholders one bit.
The share price has plummeted to almost nothing. And the price will almost certainly go to zero. Usually after a Chapter 11, new shares are issued and the old shares become worthless.
The upshot American Airlines could be worth a look when they emerge from bankruptcy down the road. But for now, dont bother. This version of AMR is finished.
Yours in profit,
Gordon Lewis
Category: Breaking News, Penny Stock Alerts, uncategorized
