Airline ETF Hits Turbulence On AMR Bankruptcy Talk

| About: Guggenheim Airline (FAA)

An exchange traded fund that follows the airline industry is facing significant headwinds as AMR Corp. (AMR) shares lost a third of their value Monday on speculation that the parent of American Airlines is filing for bankruptcy.

Guggenheim Airline ETF (NYSEARCA:FAA) ended down about 9% on Monday.

AMR was down as much as 35% on Monday after rumors circulated that management may voluntarily file for bankruptcy to renegotiate labor costs, the Financial Times reported. AMR shares ended down 33%. [Can United Outlook Boost Airline ETF?]

“AMR needs to get its costs down in line with the rest of the industry. That is why I suggest a pre-packaged bankruptcy filing would be the best thing,” Ray Neidl, airline and aerospace analyst at Maxim Group, commented in the FT report.

However, an American Airlines spokesman assured that a Chapter 11 filing was “certainly not our goal or our preference.”

The company is currently sitting on $5 billion in cash. Neidl also noted that the airline was not at risk of an imminent bankruptcy, given its current balance sheet. The broad sell-off in airlines in stocks Monday was “a signal that people think we are heading for a recession,” Neidl added.

Guggenheim Airline ETF

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Max Chen contributed to this article.

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