(Reuters) - Shares of American Airlines parent AMR Corp AMR.N fell as much as 41 percent on Monday on growing fears the third-largest U.S. airline is headed for bankruptcy, although the carrier said Chapter 11 is "not our goal."
The stock's decline to its lowest price since 2003 outpaced the share losses of rivals, which also suffered on worries that economic weakness could hit travel demand this fall.
"When can they stop the bleeding of cash?" asked Basili Alukos, an equity analyst at Morningstar. AMR had a second-quarter net loss of $286 million, while rivals showed profits.
AMR spokesman Andrew Backover acknowledged the speculation but declined to say whether AMR was considering Chapter 11.
"Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference," he said. "We know we need to improve our results, and we are keenly focused as we work to achieve that."
Although AMR typically does not comment on its stock prices, Backover noted "there is no company-driven news that has caused the volatility in AMR shares today."
American is seen as the financially weakest large U.S. carrier, and its stock closed down 33 percent at $1.98 on the New York Stock Exchange.
Shares of bankrupt companies usually become worthless, and new shares are typically issued once the restructuring is complete.
AMR's stock was halted seven times on the New York Stock Exchange on Monday. Trading is halted on the NYSE each time a stock moves more than 10 percent in a 5-minute period.
AMR said in regulatory filing last month that it expects to end the third quarter with unrestricted cash of $4.2 billion. Also last month, AMR sold $725.7 million bonds to offset a significant portion of the $1.3 billion in debt maturities remaining for 2011.
"If it appears we're coming into somewhat of a rough patch or slowdown, how is that going to fare for them?" Alukos said. "I don't think very well, because they were unable to generate a profit kind of in the best of times for the airlines last year."
Ray Neidl, a senior aerospace sector analyst with Maxim Group, said in a recent research note, "Some believe that a prepackaged bankruptcy filing would be the best thing for AMR and the industry."
But he noted on Monday that a bankruptcy filing is not inevitable.
"We do not believe that this management wants to or, in fact, is prepared to do a filing at this point and they would not be forced into one with cash reserves of over $4 billion of free cash," Neidl said.
In 2003, American retained lawyers from Weil Gotshal & Manges to advise it on a potential bankruptcy filing that ultimately did not happen. It was unclear whether the airline has kept the firm on retainer. Weil could not immediately be reached for comment on Monday.
American Airlines is the only major carrier that did not restructure in Chapter 11 during the recent industry downturn. As a result the airline has operating costs, including labor costs, that are higher than those of competitors.
The company is renegotiating its labor contracts. Management told the Allied Pilots Association union last week that 129 pilots said in September they would retire on October 1, an unusually high number for a single month.
The mass retirement spurred the bankruptcy talk on Monday because the move by those pilots locks in pension values that might have been in jeopardy if the workers risked sticking with the company through a bankruptcy reorganization when it is easier for a company to jettison pensions.
"Many assumed that part of the reason was that on retirement, pilots could take a lump sum payment on their pension and many pilots just wanted to call it quits before the situation deteriorated further," Neidl said.
Gregg Overman, a union spokesman, said a backlog of retirements are hitting now as pilots take advantage of a contract provision that enables them to leave and lock in a pension value somewhat higher than it would be if they stayed.
"Many are looking at stock market volatility and the global economy and what the prospects are going to be for the industry and American if you have this kind of turbulence and economic uncertainty," Overman said.
"They are not acting on any inside information about the airline's financial state," he said, noting that to the best of his knowledge, the bankruptcy talk at American is rumor and is not being discussed at the bargaining table.
AMR's top rivals, UAL Corp and Delta Air Lines (DAL.N), which both used bankruptcy protection to slash costs in the last decade, have since found merger partners. Delta bought Northwest Airlines and UAL Corp bought Continental Airlines to form United Continental Holdings (UAL.N).
American Airlines was not part of the latest wave of airline consolidation, although some experts believe US Airways Group LCC.N is a likely partner for AMR at some point.
In July, American placed a giant order for 460 single-aisle jets worth up to $40 billion, splitting the business between Boeing Co (BA.N) and EADS EAD.PA unit Airbus. The record-large order for fuel-efficient planes is meant to help the carrier cut costs.
The sharp decline of AMR shares was reflected in the options market where implied volatility, a barometer of anxiety, shot up 136.39 percent to 194.42 percent in early-afternoon trade, according to a note from Interactive Brokers Group options analyst Caitlin Duffy.
Reporting by Kyle Peterson in Chicago; Additional reporting by Doris Frankel in Chicago, Nicholas Brown in New York and John Crawley in Washington DC; Editing by Maureen Bavdek, Tim Dobbyn, Gary Hill and Richard Chang