November 22, 2005 02:39 PM ET US Airlines' stock sales sign of woes
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NEW YORK (Reuters) - A spate of equity offerings by leading U.S. airlines looks to take advantage of a recent industry stock rally, but the carriers' rush to sell shares is a danger sign for investors, analysts said on Tuesday.
The share sales announced by Continental Airlines Inc., JetBlue Airways Corp., American Airlines and regional carrier SkyWest mostly reflect the industry's urgent need to build up cash by any means possible and help handle fuel costs.
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"I definitely think it's a sign of weakness," said Chris Lozier, an analyst at Morningstar Inc. in Chicago. "In many of those cases it's a liquidity concern."
Depending on what happens with both share and fuel prices over the coming weeks, other airlines looking to bulk up on cash, like Alaska Air Group and AirTran Holdings , could follow suit, analysts said.
"I think that even if they weren't thinking about it before, the fact that there's been so many and that investor interest in the sector has continued despite that, would make them think about it at least," said Jim Corridore, an equity analyst at Standard & Poor's.
"I wouldn't be surprised to see more of these deals."
Continental Airlines was first in line to raise cash through a new share sale late last month, raising $204 million after its stock had rallied some 26 percent off its late-September lows.
JetBlue followed about two weeks later with a sale of $155.25 million in shares. Last week, AMR Corp. , parent of American Airlines and regional carrier SkyWest Inc. both got into the act with plans to sell 17 million shares.
The timing was particularly good for AMR, the No. 1 U.S. carrier, which will be able to take advantage of a gain of nearly 40 percent in its shares in the past month when it completes its offering Wednesday, raising up to $258 million.
Despite recent investor optimism triggered by a dip in fuel prices from post-hurricane peaks, improved revenue and hopes of reduced competition, the airlines are raising cash as a defensive move, rather than to finance future expansion.
Continental, the No. 5 carrier, whose stock slumped in September on concerns that it could eventually follow rivals into bankruptcy, paired the announcement of its stock sale plans with a warning about a possible cash shortfall in 2007.
JetBlue's stock sale followed the airline's announcement that it would break a string of quarterly profits since it went public in 2002.
AMR, already sitting on a $3.9 billion cash pile, seems in some ways an unlikely candidate to raise additional liquidity. But the airline lost $153 million in the third quarter and is expected to lose money for all of 2005 and 2006, according to Reuters Estimates.
"Your stock price goes up, you take advantage of the situation," said Ray Neidl, an analyst at Calyon Securities. "You want the market near its top and going into the slow winter season, as American is fond of saying, 'You cannot have too much cash."'
American and its rivals are moving to sell new stock now because they recognize that the recent rally could just as quickly turn into a rout if oil prices head higher, he said.
As if to underscore the fragility of the recent rally, Continental shares were down 4.5 percent on Tuesday, with American losing 3 percent and JetBlue down at least 2.5 percent, as fuel prices advanced on fears of a cold winter
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NEW YORK (Reuters) - A spate of equity offerings by leading U.S. airlines looks to take advantage of a recent industry stock rally, but the carriers' rush to sell shares is a danger sign for investors, analysts said on Tuesday.
The share sales announced by Continental Airlines Inc., JetBlue Airways Corp., American Airlines and regional carrier SkyWest mostly reflect the industry's urgent need to build up cash by any means possible and help handle fuel costs.
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"I definitely think it's a sign of weakness," said Chris Lozier, an analyst at Morningstar Inc. in Chicago. "In many of those cases it's a liquidity concern."
Depending on what happens with both share and fuel prices over the coming weeks, other airlines looking to bulk up on cash, like Alaska Air Group and AirTran Holdings , could follow suit, analysts said.
"I think that even if they weren't thinking about it before, the fact that there's been so many and that investor interest in the sector has continued despite that, would make them think about it at least," said Jim Corridore, an equity analyst at Standard & Poor's.
"I wouldn't be surprised to see more of these deals."
Continental Airlines was first in line to raise cash through a new share sale late last month, raising $204 million after its stock had rallied some 26 percent off its late-September lows.
JetBlue followed about two weeks later with a sale of $155.25 million in shares. Last week, AMR Corp. , parent of American Airlines and regional carrier SkyWest Inc. both got into the act with plans to sell 17 million shares.
The timing was particularly good for AMR, the No. 1 U.S. carrier, which will be able to take advantage of a gain of nearly 40 percent in its shares in the past month when it completes its offering Wednesday, raising up to $258 million.
Despite recent investor optimism triggered by a dip in fuel prices from post-hurricane peaks, improved revenue and hopes of reduced competition, the airlines are raising cash as a defensive move, rather than to finance future expansion.
Continental, the No. 5 carrier, whose stock slumped in September on concerns that it could eventually follow rivals into bankruptcy, paired the announcement of its stock sale plans with a warning about a possible cash shortfall in 2007.
JetBlue's stock sale followed the airline's announcement that it would break a string of quarterly profits since it went public in 2002.
AMR, already sitting on a $3.9 billion cash pile, seems in some ways an unlikely candidate to raise additional liquidity. But the airline lost $153 million in the third quarter and is expected to lose money for all of 2005 and 2006, according to Reuters Estimates.
"Your stock price goes up, you take advantage of the situation," said Ray Neidl, an analyst at Calyon Securities. "You want the market near its top and going into the slow winter season, as American is fond of saying, 'You cannot have too much cash."'
American and its rivals are moving to sell new stock now because they recognize that the recent rally could just as quickly turn into a rout if oil prices head higher, he said.
As if to underscore the fragility of the recent rally, Continental shares were down 4.5 percent on Tuesday, with American losing 3 percent and JetBlue down at least 2.5 percent, as fuel prices advanced on fears of a cold winter
