Midday Commentary: AMR bonds continue to plunge after feds oppose US Airways merger

By Paul Deckelman

New York, Aug. 14 - AMR Corp.'s bonds - which nosedived on Tuesday after the U.S. Justice Department and several state attorneys general announced opposition to the troubled airline operator's proposed merger with industry rival US Airways Group, Inc. - continued to rapidly lose altitude on Wednesday.

AMR's 6¼% notes due 2014, which had plunged more than 13 points on Tuesday to close at 103 bid, resumed their freefall Wednesday, sliding to around an 89-90 bid context. Over $31 million of the bonds had traded by mid-morning, on top of the more than $50 million which had changed hands on Tuesday, easily the biggest-volume name in Junkbondland.

While other AMR bonds also did trade at lower levels, such as its 9% notes due 2016, last quoted around 95 bid - down from 104 at the close Tuesday and 117 last week - the 6¼% notes were the only one of the company's issues really generating any sizable volume of big-block trades.

US Airways' 6 1/8% notes were trading around 92 bid, down from about 95 on Tuesday and 96 at the start of the week, but there was only one sizable trade, with the rest of the relatively light volume in smallish odd-lot transactions.

In its Tuesday filing with the federal district court in Washington, the Justice Department warned letting the transaction go though "would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher air fares and receiving less service."

For one thing, it noted that combining the two companies would end competition on thousands of routes between US Airways and AMR's principal operating unit, American Airlines.

Besides the federal government, the attorneys general from Arizona, where US Airways has its Tempe headquarters, and from Texas - Fort Worth-based AMRs home turf - are looking to block the merger, as are the states of Florida, Pennsylvania, Tennessee and Virginia, as well as the District of Columbia.

AMR's over-the-counter traded shares plummeted by $2.70, or 45.9%, on Tuesday on the initial news of Washington's opposition to its merger, and they continued to swoon on Wednesday, losing another 68 cents, or 21.45% by 10:30 a.m. ET, going down to $2.49. Volume of 30 million shares was 3½ times the norm.

US Airways' New York Stock Exchange-traded shares lost $2.46, or 13.1%, on Tuesday and had fallen another 56 cents, or 3.42%, to $15.80 as of 10:30 a.m. ET. Volume of 11.9 million shares was almost twice the usual turnover.

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