Market Overview

Boeing has "Some Risk" from American Airlines Bankruptcy


On Tuesday, American Airlines parent company AMR Corporation (NYSE: AMR) became the most recent airline to file for Chapter 11 bankruptcy in what it said is an attempt to become more competitive with the other major airlines.

Thomas W. Horton, Chairman, CEO and President of AMR and American Airlines, said, "This was a difficult decision, but it is the necessary and right path for us to take - and take now - to become a more efficient, financially stronger, and competitive airline.

According to a few analysts Benzinga contacted, there is "some risk" to Boeing (NYSE: BA) involved with American Airlines filing Chapter 11. Back in July, American Airlines selected Boeing to provide 200 narrowbody airplanes, with options for 100 more, to accelerate its single-aisle fleet replacement, and probability for an order trim is a possible scenario.

"This agreement highlights our focus on investing in our fleet for the benefit of our shareholders, customers and employees," said Tom Horton, CEO of AMR Corp upon announcement back in July. "The addition of these Next-Generation 737s will play a critical role in replacing our narrowbody fleet with more fuel-efficient aircraft offering state-of-the-art customer features."

Also in July, Airbus announced a contract with American Airlines, in which AMR will acquire 260 modern, fuel-efficient Airbus A320 Family aircraft. “We are pleased to add the Airbus single-aisle family as an important component of our fleet modernization strategy,” said Horton.

Consensus analyst color that Benzinga gathered states that American Airlines could trim some of Boeing's orders, but ultimately these aircraft are more advanced and are needed for American Airlines to get a leg-up on competition, which is what AMR is striving for. Delivery for these aircraft will be after bankruptcy and the financing was very favorable.

Even with the risk of order trimming, American Airlines in its press statement claims they have the cash to assure vendors and suppliers. "The Company has approximately $4.1 billion in unrestricted cash and short-term investments. This cash, is anticipated to be more than sufficient to assure that its vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the Chapter 11 process in accordance with customary terms."

Shares of AMR were halted just after 7:00 a.m.

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