In volatile markets, the weak are hunted. The struggling parent of American Airlines, AMR, fell prey on Monday. Its shares tumbled as much as 41 per cent on talk of a potential bankruptcy filing. Hobbled firms elsewhere have been targeted, too. Hoards of cash may be the best way to endure.
As the feeblest among the lame airline herd, American proved most vulnerable. Attention unexpectedly turned to how its aging fleet caused greater suffering from high fuel costs. Debilitating labour expenses also made for a convincing narrative to those tuning into the bankruptcy speculation that swept the market after word got out about a big group of pilots retiring.
Others have also become unwitting contestants in the latest fitness competition. In trading reminiscent of the 2008 quest for survival, when Morgan Stanley was next in line among the financial institution quarry, investors last week sent the cost of insuring against the bank’s default soaring. Eastman Kodak’s stock, meanwhile, plummeted some 68 per cent on fears of a looming Chapter 11 filing.
The fate of the three companies remains uncertain as there’s no rationalizing with bloodthirsty investors increasingly frantic about the possibility of a second recession or a collapse of the euro zone. The photography icon’s shares rebounded 71 per cent after it denied it had any plans to seek bankruptcy protection. Morgan Stanley’s hedges suggest it isn’t as defenseless against a European collapse as the market implies. With more than $4-billion (U.S.) of cash and having freshly borrowed funds just last week, AMR and American don’t give off the obvious scent of insolvency.
For those shareholders who have been demanding buybacks and other outlays, they may now better appreciate the $2-trillion fortifying their investments. A strong balance sheet is the most useful protective shell in the increasingly perilous capitalistic ecosystem.
Agnes T. Crane
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