Oct. 3, 2011, 6:01 p.m. EDT - MarketWatch

AMR pilot retirements fuel bankruptcy fears

Stock drops 33% to its lowest point on record

By Christopher Hinton, MarketWatch

WASHINGTON (MarketWatch) — Shares of American Airlines parent AMR Corp. plunged to record low Monday before a trading halt, after reports of a sharp jump in pilot retirements since August fueled speculation of a potential bankruptcy.

In a statement sent via email, AMR said bankruptcy was “not our goal or our preference.”

Shares of AMR (NYSE:AMR)  fell as much as 40% to $1.75 each before closing at $1.98, trading below its 2003 trough when a steep drop in demand led to a sharp contraction in revenue. The NYSE Arca Airline Index (NAR:XX:XAL) declined 9.8%, while the benchmark S&P 500 Index (SNC:SPX)  slumped nearly 3%.

After hours, AMR stock rebounded nearly 9% to $2.15. Read more about airline stocks.

AMR’s stock was halted at least seven times for short periods of time because of volatility Monday afternoon before resuming trade, according to the New York Stock Exchange.

“We are in a down market today, but the exceptional number of American pilots retiring is a sign that they want to protect their pensions and get out before a possible filing further [depresses] the stock price,” said Ray Neidl, an analyst with Maxim Group LLC.

“I still believe that AMR management wants to avoid filing,” he added.

The Allied Pilots Association, or APA, represents around 10,000 pilots at American Airlines.

“While more of our pilots than might normally be expected made the decision to retire in on Oct. 1, we expect to operate our schedule with minimal customer inconvenience,” said AMR in the statement.

A spokesman for the Allied Pilots Association, which represents AMR pilots, said that although it was possible the jump in pilot retirements was tied to concern over a possible AMR bankruptcy, the predominant factor is overall volatility in the stock market.

“A portion of their retirement plan is in a defined contribution, and that is not vulnerable to bankruptcy,” commented APA spokesman Greg Overman. “The defined-benefit plan portion is a bit different, and pilots have the option to take a lump sum or an annuity that is vulnerable to bankruptcy, [and] pilots overwhelming pick the lump sum.”

Pilots who retired last week could also cash in at Aug. 1 market prices, when the S&P 500 price was nearly 15% above its Monday closing.

As of Sept. 1, some 500 pilots were over age 60 and eligible for retirement, and many had been looking for a reason to get out, added Overman.

“Many of the pilots don’t want their fortunes tied to the fortunes of the airline,” he said.

Meanwhile, shares of Eastman Kodak Co. (NYSE:EK)  surged 80% Monday after the company dispelled fears that it might go into bankruptcy when it hired Jones Day, a law firm which specializes in restructuring, including Chapter 11 proceeding.