AMR Corp., parent of No. 1 U.S. carrier American Airlines, said it will raise about $503.1 million from a new share issue, shoring up its balance sheet while diluting earnings.
The resulting dilution to earnings sent AMR shares, which hit their highest level in six years last week, tumbling.
AMR will issue 13 million new shares -- about 5% of its diluted share count at the end of 2006 -- at a price of $38.70 a share. The issue could grow by 1.95 million new shares, if underwriters need to cover overallotments.
"The main reason we have had a hold rating on these shares has been our concern that American would issue equity when it had the chance to do so to help repair its balance sheet," said Helane Becker, an analyst with Benchmark Co.
But the world's largest airline, which last week said it plans to reduce capacity by 1% in 2007, also faces pressure to replace its inefficient MD-80s.
"It's a competitive disadvantage, but oil has dropped and that's taken a little bit of the pressure off," said Jim Corridore, an equities analyst with Standard & Poor's. "But they do need to address that sooner rather than later."
American has 300 MD-80s, or close to half of its fleet of 672 aircraft.
The airline has a special relationship with Boeing, as its largest customer historically, and could quickly gain access to new planes.
Remainder of story here: http://www.cnbc.com/id/16770642
Does anyone get tired of hearing how inefficient the MD-80s are compared to newer aircraft?
How much does AA owe on the MD-80s. I cannot imagine that the savings reaped by increased efficiency with new 737-800s will outweigh the additional payments and aircraft costs. For my masters thesis, I am going to do a paper on AA replacing their MD80s with 737s.