DAVID FIELD WASHINGTON
Investor sentiment for the US airlines has become investor contempt. Not even the Federal Reserve's tenth consecutive interest rate cut significantly lifted the sector, and despite a minor rally in November, airline stocks have little momentum.
The sector suffered a blow when eight carriers, including the top five, saw their unsecured debt cut to junk-bond status by ratings agency Standard & Poor's. It warned it might cut the ratings again.
The cuts affect America West; American Airlines and its parent AMR Corp; Amtran Inc (the parent of American Trans Air); Continental Airlines; Delta Air Lines; Northwest Airlines and United Airlines. The carriers' corporate ratings were unchanged by S&P, but Salomon Smith Barney bond research analyst Reno Bianchi said the downgrade might have been "a little too hasty".
The downtrend is so severe that the just are being punished along with the unjust. Bianchi cites the example of Continental Airlines, which by consensus has been one of the strongest performing US network carriers since 11 September, with the highest pre-tax margins (11.6%) of the big five despite its weaker liquidity.
Continental has tested the crisis market more than others with an offer of 6.74 million Class B shares. When it priced the secondary shares at $22.50, Continental's common stock took a 10% dip. When the new shares were sold on 3 December, the offering brought in about $172 million. By mid-December common shares were ahead of that.
Analysts called the secondary offering fairly priced, but such a struggle is remarkable given the fact that Continental is spending less than$4 million a day, one-third to one-fourth of the loss at giants American and United. It has a solid cushion of cash, according to ABN Amro analysts.
Source: Airline Business
