With quite a lot of debt, thinning liquidity, untenable costs and a worsening global economic outlook for 2012, AMR (NYSE:AMR), parent of American Airlines, bowed to the inevitable and filed for Chapter 11 bankruptcy. At this point there is virtually no chance that the company will disappear or liquidate (it doesn't even believe it needs debtor-in-possession financing), but common shareholders are almost certain to take a total wipeout here. Although a new and improved AMR will likely emerge from this process, it is yet another reminder that airlines are miserable investments in most cases.
A Surprising Filing
There have been rumors about a potential AMR bankruptcy for some time now, and as labor negotiations dragged on it seemed increasingly possible that management would use Chapter 11 reorganization as its final bit of leverage. That said, this filing is still something of a surprise - Bank of America's analyst Glenn Engel was in print just two weeks saying that bankruptcy was not imminent here, and both Morgan Stanley and Barclays had positive ratings on the stock - including an $8 price target at Barclays. (For related reading, An Overview Of Corporate Bankruptcy.)
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