Airlines soar on funding news, ignore war, SARS impact

By Carlise Newman

Chicago, April 4 - Airlines gained Friday in distressed debt trading on congressional approval of an almost $80 billion supplemental war spending package, more than $3 billion of which would help the industry. American Airlines parent AMR Corp. soared after the news, as did Delta Airlines and Continental Airlines. The sector moved higher despite even though Hong Kong's Cathay Pacific Airways cut more flights due to the deadly SARS virus.

Air Canada Inc. advanced to a certain extent as well, still cheered by Thursday's announcement of possible assistance from Texas Pacific Group.

Airlines got their wish late Thursday after both houses of the US Congress overwhelmingly passed similar budget amendments authorizing almost $80 billion in funding to cover the costs of war in Iraq and the start of reconstruction.

The Senate passed 93-0 a request from President George W. Bush for $78.7 billion, while the House of Representatives soon afterwards passed a similar bill for $77.9 billion by 414-12. The House measure includes its own proposal for $2.2 billion to go to the airlines. The measures will now go to conference.

The White House had opposed financial support for the airlines but asked lawmakers to approve the financing before Congress adjourns for spring recess on April 11.

The announcement pushed AMR forward. Its 9% notes due 2012 were quoted at 32.5 bid/34.5 offered, rising three points from Thursday's price of 29.5 bid/31.5 offered.

"AMR was wild today," said a distressed debt trader.

American had other news as well. The company announced Friday that employees will be awarded stock options for nearly 25% of the company and will also receive a share of the profits after the world's largest carrier starts making money. The profit sharing plan will earmark 15% of pretax earnings greater than $500 million to employees who do not participate in an incentive compensation plan, according to AMR, which is based in Fort Worth, Texas.

AMR announced the stock option and profit sharing plans four days after narrowly avoiding a possible bankruptcy filing when it reached tentative agreements from its major unions for $1.8 billion of annual cost cuts.

The funding announcement lifted Delta's 7½% notes of 2009 to 54 bid/56 offered, compared to 52 bid/54 offered late Thursday. Continental's 8% notes due 2005 were seen rising a point to 55 bid/56 offered.

"Airlines liked the funding obviously and aren't particularly caring about SARS affecting business," said a trader, referring to the Severe Acute Respiratory Syndrome virus, wreaking havoc on travel worldwide.

SARS has killed at least 85 people in Asia and Canada and sickened at least 2,300 in more than a dozen nations as infected travelers spread the disease. Airline analysts have been tracking the disease's effects on air travel.

Northwest and United Airlines have the greatest exposure of any U.S airlines to Asia. However, Northwest did not fare too badly Friday. Its 7 7/8% notes due 2008 were quoted at 51.5 bid, ½ point higher from Thursday.

Another airline, Air Canada, also moved higher despite filing for bankruptcy earlier in the week.

"I don't know why Air Canada is up...it's not benefiting from the financial aid the other airlines are getting," said a trader.

On Thursday, Texas Pacific Group said it is in preliminary discussions with Air Canada on making an investment but said the 25% foreign limit on voting shares might present an obstacle. Canadian Transport Minister David Collenette voiced opposition to raising the foreign ownership limit.

Texas Pacific took control of Continental Airlines in the early 1990s after that carrier filed for bankruptcy twice. It has also sought involvement with US Airways and UAL Corp.

Hayes Lemmerz International Inc. saw a slight gain in its bank debt, to 82 bid/83 offered from 81 bid/82 offered Thursday.

Facing a deadline Friday, Hayes said it has moved to extend the deadline for submitting votes on its plan of reorganization to April 28 from April 4. The company also requested that the hearing on confirmation of the plan be continued to May 7, which is the next available hearing date.

Hayes said the extensions will provide the company, its prepetition secured lenders and certain of its unsecured creditors additional time to discuss issues between those creditor classes over proposed plan distributions and other matters.

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