I did see this coming a few months ago. At that time, the CEO of US Airway (LCC) spoke in public that he was expecting a merge or acquisition of the company. I was puzzled by the M&A anomalies, so I looked into the financial statements of LCC and even other major airline companies (including AMR) and I laughed... Who were you fooling?
I was right. The stock price per share of LCC was about $9 back then. Look at how much it is now: less than $5. Actually, if there is no major improvement in LCC, I am not surprised at all if it becomes another AMR in the near future. Too bad that I am still too risk averse to open a short sale account, or maybe too busy to think about it.
I am so happy that what I learned in finance works in practice. One of my high-school classmates is working in a hedge fund. I asked him the other day what their attitude is to the CAPM model. He said "ignore...". I think it is time to have some major break-through in asset pricing. I would expect the next break-through comes from the financial market frictions. I found that someone has already worked on it: http://www.frbatlanta.org/filelegacydocs/erq307_degennaro.pdf. But I have not read it in details, so I cannot make any comment yet.
Back to the topic, I think airline is a very interesting industry. If you look into its history, there were so many bankruptcy cases. It feels like they are so familiar with the bankruptcy procedure that they do not care having another one. Would this fact affect their reputation and thus investor sentiment? I wonder whether anyone has researched on this topic. Most papers focus on the possibility that shareholders take advantage of debtholders (such as agency problems), but this case looks like the debtholders are taking advantage of the shareholders by playing bankruptcy games. I saw a post in a stock forum: a poor individual investor of AMR was asking where his money went. Believe or not, finance should be a mandatory curriculum in high schools nowadays.
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