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The new quarter started on a down note across the board, as more fears over Greece and concerns over a hard landing in China weighed on markets. The losses were pretty significant in most sectors although the worst of it was contained to the financial and basic materials corners of the market. Beyond these two sectors, one segment of the transportation industry, airlines, was also crushed on the day, this despite the continued slide in oil prices which usually benefits these crude-intensive firms. While worries over Europe and global growth certainly weighed on the airlines, yesterday’s fall was undoubtedly thanks to rumors of bankruptcy at American Airlines (AMR).

Rumors of AMR’s possibly bankruptcy quickly swept through the markets in Monday’s trading session leading to a cataclysmic day for shareholders in the firm. In fact, at one point in Monday’s trading, AMR shares were down close to 40% at one point although they rebounded somewhat to finish the day down ‘just’ 33% and added about 8% more in after-hours trading.

These heavy losses were due to investors spooked by a recent wave of retirements from many of American’s pilots. The number of retirements reported last week was 129 and marked the second straight month that retirements were over 100. Even more troubling, more than 200 pilots have retired since September first and many were those that led American flights on international routes including large 777 flights. This is an issue because many speculated that these pilots may have wanted to retire early in order to get their pension deals before a restructuring takes place.

This isn’t an unreasonable concern because American was the only so-called ‘legacy’ carrier in the U.S. to not file for bankruptcy following September 11th. This has left American paying higher labor costs than its peers and could lead the firm to a loss for the fiscal year. With that being said, some analysts are not as worried, citing the company’s strong offering in the bond market recently. “They are not on the brink,” said Bob McAdoo, an airline analyst for Nashville-based Avondale Partners.

Thanks to this speculation, investors should look for the Guggenheim Airline ETF (NYSEARCA:FAA) to be in focus throughout today’s trading session. FAA tracks the NYSE Arca Global Airline Index which is a modified equal-dollar weighted Index designed to measure the performance of highly capitalized and liquid U.S. and international passenger airline companies identified as being in the airline industry and listed on developed and emerging global market exchanges. Top holdings include United (NYSE:UAL), Delta (NYSE:DAL), and Southwest (NYSE:LUV), while American’s parent AMR makes up about 2.8% of the fund’s total assets.

Despite AMR’s relatively light allocation in the fund, the worries over a disaster hitting the world’s fourth largest airline by passengers flown, helped to severely drag down shares of the fund’s top components and especially U.S. based firms. UAL and DAL were both down more than 11% in the session while Southwest managed to skirt by with just an 8.6% loss for the day. Should the rumors of bankruptcy continue in today’s trading session, we could see all of these names head even lower on the day, especially if more concerns are raised by analysts and investors alike. If, however, we see AMR address and refute these worries definitively, it could end up being a great day for FAA, especially if oil prices continue to head lower.

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Disclosure: Eric is long LUV.

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Source: Tuesday's ETF To Watch: Guggenheim Airline ETF