Airlines gain on AMR results, pension hopes; Collins & Aikman loans keep sinking

By Paul Deckelman and Sara Rosenberg

New York, July 19 - Airline bonds were seen flying higher on Wednesday, with market-watchers attributing the rise to the strong earnings, despite higher fuel costs, reported by AMR Corp., the parent of industry leader American Airlines. Meantime, hopes for action in Washington on airline pension problems, as well as a third straight day of declining oil prices helped the battered bonds of Delta Air Lines Inc. and Northwest Airlines Corp.

In a largely quiet bank debt market, Collins & Aikman Corp.'s paper fell off by another point on Wednesday, continuing to feel the pressure of some sort of private-side information, according to a trader.

The bankrupt Troy, Mich. based automotive interior components manufacturer's debt closed out the day quoted at 89 bid, 90 offered, down from Tuesday's closing levels of 90 bid, 91 offered, the trader said. In fact, the paper has steadily dropped by 1 point every day this week.

In the junk bond market, the company's 10¾% notes due 2011 were seen unchanged at 20 bid, 21 offered, while its 12 7/8% subordinated notes due 2012 continued to languish at two to three cents on the dollar.

The Collins & Aikman bonds had been much firmer last week, with the senior bonds in the upper 20s and the juniors at around six to seven cents on the dollar, pushed upward by speculation that the company could be an acquisition target. One name mentioned at that time as a possible buyer was billionaire financier Wilbur L. Ross, whose International Automotive Components holding company has already bought Collins & Aikman's European business and, along with partner Lear Corp., is studying the domestic operations as well.

No bid was seen emerging from either Ross or any other bidder at that time, and the speculation about an imminent offer for Collins & Aikman seems to have faded, sending the bonds and the bank debt lower.

Ross, however, continues to hover in the background. The tycoon has an impressive track record of going into battered industries and successfully melding the shattered pieces into a working entity again. He has already managed to consolidate the once-battered steel and coal industries, by buying up assets of bankrupt companies, forming them into one company and negotiating more favorable labor agreement with their unions so as to operate profitably. Ross turned around and sold his International Steel Group assets to Mittal Steel Co., believed to now be the world's biggest steel producer.

Autos steady to higher

Elsewhere, a trader saw other distressed automotive names little moved on the session, with Delphi Corp.'s 6.55% notes due 2006 unchanged at 82.75 bid, 83.25 offered. The bankrupt Troy-based former General Motors Corp. parts unit's 7 1/8% notes due 2029 were ½ point lower at 77.25 bid, 78.25 offered.

Former Delphi parent GM's flagship 8 3/8% notes due 2033 were up ½ point at 79.25 bid, 79.75 offered, while the 8% notes due 2031 of the automaker's General Motors Acceptance Corp. financing unit were ½ point better at 95.5 bid, 96.5 offered.

Bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 6½% notes due 2008 were ½ point better at 84 bid, 85 offered, while its 5.85% notes due 2015 were unchanged at 74.5 bid, 75.5 offered.

Tower down

However, bankrupt Novi, Mich.-based vehicular frame maker Tower Automotive Inc.'s 12% notes due 2013 - which gyrated around at sharply lower levels on Monday, on investor fears about possible recovery levels, only to regain a little of their lost ground on Tuesday, were back on the downside Wednesday, losing 1½ points to close at 58.5 bid, 59.5 offered.

Foamex rises

A trader in distressed notes said that he had seen Foamex International Inc.'s bonds "up a couple of points," with the bankrupt Linwood, Pa.-based foam rubber products maker's 9 3/8% issue 2 points better on the session at 93 bid, 95 offered.

Airlines higher

The airline names were meantime seen taking flight, helped by a third straight session of lower oil prices, as well as investor hopes that Congressional action on pension fund reforms will let the troubled carriers stretch out the amount of time in which they have to make up for their underfunded pensions.

A trader saw Northwest Airlines' 8.70% notes due 2007 up a point at 49 bid, 51 offered, while Delta Air Lines' 8.30% notes due 2029 were up ½ point at 27.5 bid, 28.5 offered. Delta's other bonds were ½ point behind that issue, but still traded up on the day, he said.

The bonds of the bankrupt Eagan, Minn.-based Northwest, the Number Four U.S. airline carrier, and bankrupt Atlanta based Number-3 operator Delta, were believed to have gotten a boost as crude oil futures fell for the third straight session on the New York Mercantile Exchange. A barrel of light crude settled at $72.66, down 88 cents. Just three days ago, crude was touching new intra-day highs about $78 per barrel. Crude prices are seen by many observers as a fairly reliable leading indicator of which way jet fuel prices may go.

Besides helping Delta and Northwest, the retreat in oil prices, as well as the prospect of pension relief from Washington, helped give a firmer tone to AMR's shares, although most of their strength was due to favorable numbers put out by the Fort Worth, Tex.-based parent of American Airlines.

Its 9% notes due 2012 were seen up ½ point at 99.5 bid.

AMR reported Wednesday that its second-quarter net earnings soared from year-ago levels, helped by a combination of more fare-paying passengers and fewer empty seats on its flights during what is traditionally a strong quarter for the airline industry, and higher fares.

It was only the second quarter out of the last 22 in which AMR has turned a profit, not counting several quarters in which it finished in the black due to unusual one-time items (see related story elsewhere in this issue).

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