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News for 'FRNTQ' - (DJ Airline Shares Fall With UAL Down Sharply On Stock, Debt Issue)

FRNTQ News -- DJ Airline Shares Fall With UAL Down Sharply On St...

Thursday, October 1, 2009 10:16 AM

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News for 'FRNTQ' - (DJ Airline Shares Fall With UAL Down Sharply On Stock, Debt Issue)

By Christopher Hinton

Airline stocks were down early Thursday with United parent UAL Corp. off sharply after announcing it would issue new stock and debt.

At last check, the NYSE Arca Airline Index (XAL) fell 3.3% to 27.84 points with all but one of its 13 components in the red. In the past 52 weeks, the benchmark index moved in a range of 30.95 to as low as 12.62 points.

The Dow Jones Industrial Average (DJI) meanwhile, fell about 63 points to 9,650.

Shares of US Airways (LCC) slipped 3.6% to $4.53, Continental (CAL) lost 4% to $15.75 and Delta Air Lines (DAL) fell 3% to $8.67.

Shares of United parent UAL (UAUA) fell nearly 9% to $8.41, as shareholders cashed in on a widely expected issuance of new common stock and debt.

Late Wednesday, the Chicago carrier said it would offer 19 million additional shares and $175 million in convertible senior notes, using the funds for general purposes. It will also offer nearly 2.9 million shares and $26.3 million in notes to the underwriters to cover over-allotments.

The announcement is the latest cash-raising story to come out of the troubled industry. In the past month, AMR, US Airways and Delta have renegotiated their loan covenants, entered sale-leaseback agreements for their equipment, issued new shares and debt to provide needed liquidity for the leaner winter months ahead.

"The industry needs all the cash it can get," said bond researcher CreditSights.

Thursday's dilution in UAL's share price shouldn't concern stakeholders too much, as the stock has seen a nearly 50% jump in value since Sept. 1, CreditSights said.

However, the firm also warned that airline equity and fundamentals remain weak and played down any further recovery in airline equity prices.

"Airline equity is really a short-term security anyway, as recurring restructurings and liquidity events erode if not eliminate existing shareholders over time," the CreditSights said.

Investors jumped into airlines last month, pushing up the NYSE Arca Airline Index by more than 27% as the industry tapped thawing credit markets to strengthen its liquidity position. The benchmark Dow Jones Industrial Average rose just 4% over the same period.

Rising on Thursday were shares of Ryanair (RYAAY), up a dime to $29.14, and Tam Sa (TAM) traded sideways at $12.91.

Outside the index, Midwest Airlines is expected to ground the last of its Boeing (BA) 717 jets by Dec. 1, laying off about 170 people including pilots and flight attendants, the Milwaukee-Wisconsin Journal Sentinel reported.

Midwest was taken over by Republic Airways Holdings Inc. (RJET) in June, which will replace the Boeing planes with Republic-staffed Embraer (ERJ) E190 jets, and with Airbus A319 aircraft from Frontier Airlines, the newspaper reported.

Frontier (FRNT) was snatched up by Republic in August while it was in bankruptcy. The Denver carrier is expected to emerge from restructuring on Thursday, according to the Associated Press.

-Christopher Hinton; 415-439-6400; [e-mail]

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(END) Dow Jones Newswires

October 01, 2009 10:14 ET (14:14 GMT)

Copyright (c) 2009 Dow Jones & Company, Inc.- - 10 14 AM EDT 10-01-09

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